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The impact of supervision on bank performance

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Abstract

We explore the impact of supervision on the riskiness, profitability, and growth of U.S. banks. Using data on supervisors’ time use, we demonstrate that the top-ranked banks by size within a supervisory district receive more attention from supervisors, even after controlling for size, complexity, risk, and other characteristics. Using a matched sample approach, we find that these top-ranked banks that receive more supervisory attention hold less risky loan portfolios and are less volatile and less sensitive to industry downturns, but do not have slower growth or profitability. Our results underscore the distinct role of supervision in mitigating banking sector risk.

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  • 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.
    • Handle: RePEc:fip:fednsr:768
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    Cited by:

    1. Charles W. Calomiris & Mark Carlson, 2018. "Bank Examiners’ Information and Expertise and Their Role in Monitoring and Disciplining Banks Before and During the Panic of 1893," NBER Working Papers 24460, National Bureau of Economic Research, Inc.
    2. 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.
    3. John Kandrac & Bernd Schlusche, 2017. "The Effect of Bank Supervision on Risk Taking : Evidence from a Natural Experiment," Finance and Economics Discussion Series 2017-079, Board of Governors of the Federal Reserve System (US).

    More about this item

    Keywords

    bank supervision; bank regulation; bank performance;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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