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Can Bank Supervisors Rely on Market Data? A Critical Assessment from a Swiss Perspective

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  • Urs W. Birchler
  • Matteo Facchinetti

Abstract

Market data, such as bond spreads or equity price volatility, are a complementary source to bank supervisory information. In Switzerland, meaningful market data are available for a number of banks which constitute a major part of the banking system. Notwithstanding some limitations (biases due to state guarantee for cantonal banks and potential "too-big-to-fail" expectations for big banks) these market data are likely to play a supervisory role in the future. However, once the market expects supervisors to react to market data, these data become endogenous. This may jeopardize the very potential of market data to serve as policy guides.

Suggested Citation

  • 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.
  • Handle: RePEc:ses:arsjes:2007-ii-1
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    Cited by:

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    2. Zhang, Zhichao & Song, Wei & Sun, Xin & Shi, Nan, 2014. "Subordinated debt as instrument of market discipline: Risk sensitivity of sub-debt yield spreads in UK banking," Journal of Economics and Business, Elsevier, vol. 73(C), pages 1-21.
    3. Adrian Pop, 2009. "Beyond the Third Pillar of Basel Two: Taking Bond Market Signals Seriously," Working Papers hal-00419241, HAL.
    4. Pablos Nuevo, Irene, 2019. "Has the new bail-in framework increased the yield spread between subordinated and senior bonds?," Working Paper Series 2317, European Central Bank.
    5. Elyas Elyasiani & Jason Keegan, 2017. "Market Discipline in the Secondary Bond Market: The Case of Systemically Important Banks," Working Papers 17-5, Federal Reserve Bank of Philadelphia.

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    More about this item

    Keywords

    bank supervision;

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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