{"title":"Preventing Borrower Runs: The Prompt Corrective Action Approach","authors":"Nisha Kashyap, Sriniwas Mahapatro, Prasanna Tantri","doi":"10.2139/ssrn.3933476","DOIUrl":null,"url":null,"abstract":"We ask whether regulatory intervention in the form of prompt corrective action that seeks to bring troubled banks back to health by imposing temporary restrictions and increasing regulatory monitoring reverses borrower runs. Using the Indian PCA regime and exploiting the sharp discontinuity provided by the entry criteria in a regression discontinuity framework, we find that timely regulatory intervention reduces loan delinquency by way of borrower runs by 93%. Cross-sectional tests based on regional variation in court efficiency and the relationship between economic shocks and delinquency show that a reduction in strategic default leads to improvement in loan performance.","PeriodicalId":331807,"journal":{"name":"Banking & Insurance eJournal","volume":null,"pages":null},"PeriodicalIF":0.0000,"publicationDate":"2021-09-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"2","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Banking & Insurance eJournal","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.2139/ssrn.3933476","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"","JCRName":"","Score":null,"Total":0}
引用次数: 2
Abstract
We ask whether regulatory intervention in the form of prompt corrective action that seeks to bring troubled banks back to health by imposing temporary restrictions and increasing regulatory monitoring reverses borrower runs. Using the Indian PCA regime and exploiting the sharp discontinuity provided by the entry criteria in a regression discontinuity framework, we find that timely regulatory intervention reduces loan delinquency by way of borrower runs by 93%. Cross-sectional tests based on regional variation in court efficiency and the relationship between economic shocks and delinquency show that a reduction in strategic default leads to improvement in loan performance.