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|
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|Publication status:||Published in Review of Accounting and Finance, November 2005, 4(4), pp. 110-34|
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"The Information Content of Bank Examinations,"
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94-24, Wharton School Center for Financial Institutions, University of Pennsylvania.
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