Incorporating Equity Market Information into Supervisory Monitoring Models
AbstractWe examine whether equity market variables, such as stock returns and equity-based default probabilities, are useful to U.S. bank supervisors for assessing the condition of domestic bank holding companies. We develop a model of supervisory ratings that combines supervisory and equity market information. We find that the model's forecasts anticipate supervisory rating changes by up to four quarters. Relative to simply using supervisory variables, the inclusion of equity market variables in the model does not improve forecast accuracy. However, we argue that equity market information should still be useful for forecasting supervisory ratings and should be incorporated into supervisory monitoring models.
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Bibliographic InfoArticle provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.
Volume (Year): 36 (2004)
Issue (Month): 6 (December)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879
Other versions of this item:
- John Krainer & Jose A. Lopez, 2001. "Incorporating equity market information into supervisory monitoring models," Working Paper Series 2001-14, Federal Reserve Bank of San Francisco.
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