Preventing Defaults in Response to Deteriorating Bank Health: The Prompt Corrective Action Approach
研究印度及时纠正措施（PCA）监管干预能否减少银行财务困境时借款人的违约，发现PCA通过增强监管可信度显著降低违约，对政策制定者和银行监管者有用。
ABSTRACT Prior research shows that borrowers are more likely to default when their banks are financially distressed, particularly where contract enforcement is weak. We examine whether regulatory intervention in the form of Prompt Corrective Action (PCA), which seeks to improve bank health through enhanced monitoring, reverses such defaults. To address this question, we exploit the bright‐line entry thresholds in India's PCA regime using a regression discontinuity framework. We first show that such defaults exist in India. Our main result is that PCA intervention significantly reduces such defaults. The result is robust to variation in methodology and alternative definitions of bank health. Our evidence suggests that PCA reduces such defaults by credibly signaling to borrowers the likely restoration of bank health and continuity of lending relationships. Its effectiveness was reinforced by an earlier regulatory reform that improved the timeliness of loan‐loss provisioning, enhancing the credibility of enforcement. Overall, our findings suggest that PCA, when underpinned by credible financial reporting, can serve as an effective policy tool to curb strategic defaults.