We study whether and how offshore account transparency affects bank balance sheets and corresponding credit supply. Using the Foreign Account Tax Compliance Act (FATCA) as our empirical setting, we show that FATCA-exposed banks saw decreases in wholesale funding and foreign deposits and offsetting increases in domestic deposits, resulting in no change in total liabilities. However, affected banks decreased small business lending by over 20\% while increasing securities holdings modestly. County-level analysis shows a contraction in local credit supply, leading to a 48 basis-point decline in business establishments for the average county. Overall, our results are consistent with banks reducing exposure to illiquid assets as deposit drawdowns from their foreign branches pose funding stability risk.

zlynne@ceibs.edu