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Supervisory information and the frequency of bank examinations

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  • Beverly 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.

Suggested Citation

  • Beverly Hirtle & Jose A. Lopez, 1999. "Supervisory information and the frequency of bank examinations," Economic Policy Review, Federal Reserve Bank of New York, issue Apr, pages 1-20.
  • Handle: RePEc:fip:fednep:y:1999:i:apr:p:1-20:n:v.5no.1
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    References listed on IDEAS

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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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    Cited by:

    1. 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.
    2. 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.
    3. 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.).
    4. 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.
    5. Kiewiet, Gera & van Lelyveld, Iman Paul Pieter & van Wijnbergen, Sweder, 2017. "Contingent Convertibles: Can the Market handle them?," CEPR Discussion Papers 12359, C.E.P.R. Discussion Papers.
    6. John Krainer & Jose A. Lopez, 2008. "Using Securities Market Information for Bank Supervisory Monitoring," International Journal of Central Banking, International Journal of Central Banking, vol. 4(1), pages 125-164, March.
    7. Peresetsky, A. A., 2011. "What factors drive the Russian banks license withdrawal," MPRA Paper 41507, University Library of Munich, Germany.
    8. 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.
    9. Drew Dahl & Douglas Evanoff & Michael Spivey, 2003. "The Timing and Persistence of CRA Compliance Ratings," Journal of Financial Services Research, Springer;Western Finance Association, vol. 23(2), pages 113-132, April.
    10. 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 Sep 2018.
    11. Pagès, H. & Santos, J., 2002. "Optimal Supervisory Policies and Depositor-Preferences Laws," Working papers 91, Banque de France.
    12. 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.
    13. 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.
    14. Gyanendra Prasad Paudel & Suvash Khanal, 2016. "Determinants of Capital Adequacy Ratio (CAR) in Nepalese Cooperative Societies," Proceedings of Economics and Finance Conferences 3205910, International Institute of Social and Economic Sciences.
    15. Li, Lei, 2013. "TARP funds distribution and bank loan supply," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 4777-4792.
    16. 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.
    17. Moore, Kyle & Zhou, Chen, 2014. "The determinants of systemic importance," LSE Research Online Documents on Economics 59289, London School of Economics and Political Science, LSE Library.
    18. Dr. Mikail Altan & Habib Yusufazari & Aykut Bedük, 2014. "Performance Analysis of Banks in Turkey Using CAMEL Approach," Proceedings of International Academic Conferences 0902916, International Institute of Social and Economic Sciences.
    19. John S. Jordan & Eric S. Rosengren, 2002. "Economic cycles and bank health," Conference Series ; [Proceedings], Federal Reserve Bank of Boston.
    20. 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.
    21. Eisenbach, Thomas M. & Lucca, David O. & Townsend, Robert M., 2016. "The economics of bank supervision," Staff Reports 769, Federal Reserve Bank of New York, revised 01 Jan 2017.
    22. Viral V. Acharya & Denis Gromb & Tanju Yorulmazer, 2012. "Imperfect Competition in the Interbank Market for Liquidity as a Rationale for Central Banking," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(2), pages 184-217, April.
    23. Fernando da Silva Vinhado & José Angelo Divino, 2015. "Monetary and Macroprudential Policies: Empirical Evidences from Panel-VAR," Brazilian Review of Finance, Brazilian Society of Finance, vol. 13(4), pages 691-731.
    24. Goldsmith-Pinkham, Paul & Hirtle, Beverly & Lucca, David O., 2016. "Parsing the content of bank supervision," Staff Reports 770, Federal Reserve Bank of New York.
    25. Pennacchi, George G., 2005. "Risk-based capital standards, deposit insurance, and procyclicality," Journal of Financial Intermediation, Elsevier, vol. 14(4), pages 432-465, October.

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    Keywords

    Bank supervision ; Banking law;

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