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Bank Monitoring with On-Site Inspections

alphaarchitect

1 month ago

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Banks are supposed to have a unique edge. Not just in lending. But in understanding borrowers, monitoring risk, and intervening when things go wrong. For decades, theory has argued that this monitoring advantage is what makes banks special relative to nonbanks. Yet direct evidence has been limited. This paper opens that black box. Using detailed, loan-level data and actual inspection reports, it shows how banks monitor borrowers in real time, how they act on that information, and how monitoring...

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