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The Information Content of Bank Exam Ratings and Subordinated Debt Prices

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Author Info
DeYoung, Robert, et al
Abstract

Do supervisory examinations of large commercial banking firms produce useful information not already reflected in market prices? To investigate this question, we apply a new research methodology to data on bank exam ratings and the subordinated debt risk spreads of their parent holding companies. We find that government exams do produce new, value-relevant information; that debenture prices do not immediately reflect this information; and that the market prices the likely regulatory actions implied by this information. These results have implications for market versus regulatory discipline at large banking firms, and for proposals to make subordinated debt mandatory for these firms.

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Publisher Info
Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 33 (2001)
Issue (Month): 4 (November)
Pages: 900-925
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:mcb:jmoncb:v:33:y:2001:i:4:p:900-925

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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  1. Daniel M. Covitz & Diana Hancock & Myron L. Kwast, 2002. "Market discipline in banking reconsidered: the roles of deposit insurance reform, funding manager decisions and bond market liquidity," Finance and Economics Discussion Series 2002-46, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  2. Mark M. Spiegel & Nobuyoshi Yamori, 2003. "Determinants of voluntary bank disclosure: evidence from Japanese Shinkin banks," Pacific Basin Working Paper Series 03-03, Federal Reserve Bank of San Francisco. [Downloadable!]
    Other versions:
  3. Agoraki, Maria-Eleni & Delis, Manthos D & Pasiouras, Fotios, 2009. "Regulations, competition and bank risk-taking in transition countries," MPRA Paper 16495, University Library of Munich, Germany. [Downloadable!]
  4. Kose John & Hamid Mehran & Yiming Qian, 2007. "Regulation, subordinated debt, and incentive features of CEO compensation in the banking industry," Staff Reports 308, Federal Reserve Bank of New York. [Downloadable!]
  5. Delis, Manthos D & Staikouras, Panagiotis, 2009. "On-site audits, sanctions, and bank risk-taking: An empirical overture towards a novel regulatory and supervisory philosophy," MPRA Paper 16836, University Library of Munich, Germany. [Downloadable!]
  6. Hartarska, Valentina, 2006. "Rating in Microfinance: Cross-Country Evidence," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25506, International Association of Agricultural Economists. [Downloadable!]
  7. Naohiko Baba & Masakazu Inada, 2007. "Price Discovery of Credit Spreads for Japanese Mega-Banks: Subordinated Bond and CDS," IMES Discussion Paper Series 07-E-06, Institute for Monetary and Economic Studies, Bank of Japan. [Downloadable!]
  8. Greg Caldwell, 2005. "Subordinated Debt and Market Discipline in Canada," Working Papers 05-40, Bank of Canada. [Downloadable!]
  9. Alon Raviv, 2004. "Bank Stability and Market Discipline: Debt-for-Equity Swap versus Subordinated Notes," Finance 0408003, EconWPA. [Downloadable!]
  10. 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. [Downloadable!]
  11. Robert R. Bliss, 2001. "Market discipline and subordinated debt: a review of some salient issues," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q I, pages 24-45. [Downloadable!]
  12. Philip Bond & Itay Goldstein & Edward S. Prescott, 2006. "Market-based regulation and the informational content of prices," Working Paper 06-12, Federal Reserve Bank of Richmond. [Downloadable!]
  13. Adam Ashcraft & Hoyt Bleakley, 2006. "On the market discipline of informationally opaque firms: evidence from bank borrowers in the federal funds market," Staff Reports 257, Federal Reserve Bank of New York. [Downloadable!]
  14. Daniel M. Covitz & Diana Hancock & Myron L. Kwast, 2004. "A reconsideration of the risk sensitivity of U.S. banking organization subordinated debt spreads: a sample selection approach," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 73-92. [Downloadable!]
  15. Caprio, Gerard & Honohan, Patrick, 2001. "Finance for Growth: Policy Choices in a Volatile World," MPRA Paper 9929, University Library of Munich, Germany. [Downloadable!]
  16. Daniel M. Covitz & Diana Hancock & Myron L. Kwast, 2004. "Market discipline in banking reconsidered: the roles of funding manager decisions and deposit insurance reform," Finance and Economics Discussion Series 2004-53, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  17. Patrick Van Roy, 2006. "Is there a difference between solicited and unsolicited bank ratings and if so, why ?," Research series 200603-1, National Bank of Belgium. [Downloadable!]
  18. Urs W. Birchler & Matteo Facchinetti, 2007. "Can Bank Supervisors Rely on Market Data? A Critical Assessment from a Swiss Perspective," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 143(II), pages 95-132, June. [Downloadable!]
    Other versions:
  19. Daniel M. Covitz & Paul Harrison, 2003. "Do banks strategically time public bond issuance because of the accompanying disclosure, due diligence, and investor scrutiny?," Finance and Economics Discussion Series 2003-37, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  20. John Krainer & Jose A. Lopez, 2001. "Incorporating equity market information into supervisory monitoring models," Working Papers in Applied Economic Theory 2001-14, Federal Reserve Bank of San Francisco. [Downloadable!]
    Other versions:
  21. Caprio, Gerard & Honohan, Patrick, 2004. "Can the unsophisticated market provide discipline?," Policy Research Working Paper Series 3364, The World Bank. [Downloadable!]
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