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Supervisory information and the frequency of bank examinations

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Author Info

  • Beverly J. Hirtle
  • Jose A. Lopez

Abstract

Bank supervisors need timely and reliable information about the financial condition and risk profile of banks. A key source of this information is the on-site, full-scope bank examination. This article evaluates the frequency with which supervisors examine banks by assessing the decay rate of the private supervisory information gathered during examinations. The analysis suggests that this information ceases to provide a useful picture of a bank's current condition after six to twelve quarters. The decay rate appears to be faster in years when the banking industry experiences financial difficulties, and it is significantly faster for troubled banks than for healthy ones. Thus, the analysis suggests that the annual examination frequency currently mandated by law is reasonable, particularly during times of financial stress for the banking industry.

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Bibliographic Info

Article provided by Federal Reserve Bank of New York in its journal Economic Policy Review.

Volume (Year): (1999)
Issue (Month): Apr ()
Pages: 1-20

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Handle: RePEc:fip:fednep:y:1999:i:apr:p:1-20:n:v.5no.1

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Related research

Keywords: Bank supervision ; Banking law;

References

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  1. R. Alton Gilbert, 1993. "Implications of annual examinations for the Bank Insurance Fund," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 35-52.
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Citations

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Cited by:
  1. Pagès, H. & Santos, J., 2002. "Optimal Supervisory Policies and Depositor-Preferences Laws," Working papers 91, Banque de France.
  2. Donald P. Morgan & Stavros Peristiani & Vanessa Savino, 2010. "The information value of the stress test and bank opacity," Staff Reports 460, Federal Reserve Bank of New York.
  3. Edward J. Kane & Rosalind Bennett & Robert Oshinsky, 2008. "Evidence of Improved Monitoring and Insolvency Resolution after FDICIA," NBER Working Papers 14576, National Bureau of Economic Research, Inc.
  4. Stojanovic, Dusan & Vaughan, Mark D. & Yeager, Timothy J., 2008. "Do Federal Home Loan Bank membership and advances increase bank risk-taking?," Journal of Banking & Finance, Elsevier, vol. 32(5), pages 680-698, May.
  5. R. Alton Gilbert & Andrew P. Meyer & Mark D. Vaughan, 2000. "The role of a CAMEL downgrade model in bank surveillance," Working Papers 2000-021, Federal Reserve Bank of St. Louis.
  6. Drew Dahl & Douglas Evanoff & Michael Spivey, 2003. "The Timing and Persistence of CRA Compliance Ratings," Journal of Financial Services Research, Springer, vol. 23(2), pages 113-132, April.
  7. John S. Jordan & Eric S. Rosengren, 2002. "Economic cycles and bank health," Conference Series ; [Proceedings], Federal Reserve Bank of Boston.
  8. Peresetsky, A. A., 2011. "What factors drive the Russian banks license withdrawal," MPRA Paper 41507, University Library of Munich, Germany.
  9. Marcelo Rezende, 2011. "How do joint supervisors examine financial institutions? the case of state banks," Finance and Economics Discussion Series 2011-43, Board of Governors of the Federal Reserve System (U.S.).
  10. Moore, Kyle & Zhou, Chen, 2013. ""Too big to fail" or "Too non-traditional to fail"?: The determinants of banks' systemic importance," MPRA Paper 45589, University Library of Munich, Germany.
  11. John Krainer & Jose A. Lopez, 2003. "How might financial market information be used for supervisory purposes?," Economic Review, Federal Reserve Bank of San Francisco, pages 29-45.
  12. Thomas B. King & Daniel A. Nuxoll & Timothy J. Yeager, 2006. "Are the causes of bank distress changing? can researchers keep up?," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 57-80.
  13. Pennacchi, George G., 2005. "Risk-based capital standards, deposit insurance, and procyclicality," Journal of Financial Intermediation, Elsevier, vol. 14(4), pages 432-465, October.
  14. Li, Lei, 2013. "TARP funds distribution and bank loan supply," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 4777-4792.
  15. John S. Jordan, 1999. "Pricing bank stocks: the contribution of bank examinations," New England Economic Review, Federal Reserve Bank of Boston, issue May, pages 39-53.

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