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Do supervisory rating standards change over time?

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  • John Krainer
  • Jose A. Lopez

Abstract

Supervisory BOPEC ratings were assigned to bank holding companies (BHCs) during the years 1987 to 2004 as a summary of their overall performance and level of supervisory concern. In this article, we examine the stability of the BOPEC ratings assigned over that period. We model supervisory ratings using balance sheet variables, and our analysis suggests that BOPEC rating standards varied over time. Supervisors seem to have applied more stringent rating standards from 1989 to 1992, a period marked by a recession and a large degree of distress in the banking sector. Rating standards then eased during the economic recovery from 1993 to 1998, before showing increasing signs of toughness again from 1999 through 2004. Based on our estimated model parameters, we find that, in some cases, up to 25 percent of the BHCs that were assigned a BOPEC rating in a "tough" year would have been given a better rating in an "easy" year. The reasons for the observed variation in supervisory standards could be changes in supervisory behavior, but they are also surely related to the substantial changes that occurred within the U.S. banking system over this 17-year period.

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Bibliographic Info

Article provided by Federal Reserve Bank of San Francisco in its journal Economic Review.

Volume (Year): (2009)
Issue (Month): ()
Pages: 13-24

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Handle: RePEc:fip:fedfer:y:2009:p:13-24

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Keywords: Bank supervision;

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Cited by:
  1. Panayiotis P. Athanasoglou & Ioannis Daniilidis, 2011. "Procyclicality in the banking industry: causes, consequences and response," Working Papers 139, Bank of Greece.
  2. Peresetsky, A. A., 2011. "What factors drive the Russian banks license withdrawal," MPRA Paper 41507, University Library of Munich, Germany.
  3. Athanasoglou, Panayiotis & Ioannis, Daniilidis & Manthos, Delis, 2013. "Bank procyclicality and output: Issues and policies," MPRA Paper 50830, University Library of Munich, Germany.
  4. H. Evren Damar & Reint Gropp & Adi Mordel, 2012. "The Ex-Ante Versus Ex-Post Effect of Public Guarantees," Working Papers 12-22, Bank of Canada.
  5. Gaul, Lewis & Palvia, Ajay, 2013. "Are regulatory management evaluations informative about bank accounting returns and risk?," Journal of Economics and Business, Elsevier, vol. 66(C), pages 1-21.

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