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Supervisory information and the frequency of bank examinations

  • Beverly J. Hirtle
  • Jose A. Lopez

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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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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  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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