The contribution of on-site examination ratings to an emprircal model of bank failures
This paper investigates how well regulator examinations predict bank failures, and how best to incorporate examination information into an econometric model of time-to-failure. We estimate proportional hazard models with time-varying covariates and find that examiner ratings help explain the failure hazard. Both the overall rating of a bank's condition and management, i.e., the composite CAMELS rating, and ratings of specific components contain information. In addition, we find that the marginal "effect" of ratings is non-linear, in that the impact of a rating downgrade on the probability of failure is larger, the weaker a bank's initial rating.
|Date of creation:||1999|
|Publication status:||Published in Review of Accounting and Finance, November 2005, 4(4), pp. 110-34|
|Contact details of provider:|| Postal: P.O. Box 442, St. Louis, MO 63166|
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"Comparing market and supervisory assessments of bank performance: who knows what when?,"
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94-20, Board of Governors of the Federal Reserve System (U.S.).
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- Rebel A. Cole & Jeffery W. Gunther, 1995. "FIMS: a new monitoring system for banking institutions," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jan, pages 1-15.
- Robert DeYoung, 1998. "Management Quality and X-Inefficiency in National Banks," Journal of Financial Services Research, Springer;Western Finance Association, vol. 13(1), pages 5-22, February.
- 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.
- Allen N. Berger & Sally M. Davies, 1994. "The information content of bank examinations," Proceedings 55, Federal Reserve Bank of Chicago.
- Jones, David S. & King, Kathleen Kuester, 1995. "The implementation of prompt corrective action: An assessment," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 491-510, June.
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