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We find that regulators can implement identical rules inconsistently due to differences in their institutional design and incentives, and this behavior may adversely impact the effectiveness with which regulation is implemented. We study supervisory decisions of U.S. banking regulators and exploit a legally determined rotation policy that assigns federal and state supervisors to the same bank at exogenously set time intervals. Comparing federal and state regulator supervisory ratings within the same bank, we find that federal regulators are systematically tougher, downgrading supervisory ratings almost twice as frequently as do state supervisors. State regulators counteract these downgrades to some degree by upgrading more frequently. Under federal regulators, banks report worse asset quality, higher regulatory capital ratios, and lower return on assets. Leniency of state regulators relative to their federal …