We study how regulatory interventions targeting weak banks affect credit allocation and real economic outcomes. Using staggered bank-level exposure to regulatory restrictions and the universe of collateralized corporate loans matched with firm-level financial data, we identify contractions in bank credit supply. We find that affected banks reduce lending disproportionately to high-risk firms, which subsequently experience persistent declines in sales and investment and are largely unable to substitute toward non-bank financing. In contrast, low-risk firms in exposed industries receive relatively more credit and expand investment and employment. These patterns are consistent with a reallocation of credit and productive resources from high-risk to low-risk firms and are accompanied by modest improvements in industry-level productivity in more exposed sectors.