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Do supervisory rating standards change over time?


  • John Krainer
  • Jose A. Lopez


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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  • John Krainer & Jose A. Lopez, 2009. "Do supervisory rating standards change over time?," Economic Review, Federal Reserve Bank of San Francisco, pages 13-24.
  • Handle: RePEc:fip:fedfer:y:2009:p:13-24

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    Cited by:

    1. Evren Damar & Reint Gropp & Adi Mordel, 2013. "The Ex Ante versus Ex Post Effect of Public Guarantees," World Scientific Book Chapters,in: The Role of Central Banks in Financial Stability How Has It Changed?, chapter 18, pages 347-364 World Scientific Publishing Co. Pte. Ltd..
    2. Athanasoglou, Panayiotis P. & Daniilidis, Ioannis & Delis, Manthos D., 2014. "Bank procyclicality and output: Issues and policies," Journal of Economics and Business, Elsevier, vol. 72(C), pages 58-83.
    3. Eisenbach, Thomas M. & Haughwout, Andrew F. & Hirtle, Beverly & Kovner, Anna & Lucca, David O. & Plosser, Matthew, 2017. "Supervising large, complex financial institutions: what do supervisors do?," Economic Policy Review, Federal Reserve Bank of New York, issue 23-1, pages 57-77.
    4. 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.
    5. Hirtle, Beverly & Kovner, Anna & Plosser, Matthew, 2016. "The impact of supervision on bank performance," Staff Reports 768, Federal Reserve Bank of New York, revised 01 Jul 2016.
    6. Peresetsky, A. A., 2011. "What factors drive the Russian banks license withdrawal," MPRA Paper 41507, University Library of Munich, Germany.
    7. Bassett, William F. & Lee, Seung Jung & Spiller, Thomas Popeck, 2015. "Estimating changes in supervisory standards and their economic effects," Journal of Banking & Finance, Elsevier, vol. 60(C), pages 21-43.
    8. Kupiec, Paul & Lee, Yan & Rosenfeld, Claire, 2017. "Does bank supervision impact bank loan growth?," Journal of Financial Stability, Elsevier, vol. 28(C), pages 29-48.
    9. Panayiotis P. Athanasoglou & Ioannis Daniilidis, 2011. "Procyclicality in the banking industry: causes, consequences and response," Working Papers 139, Bank of Greece.

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