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Finance and Economics Discussion Series
The Finance and Economics Discussion Series logo links to FEDS home page Comparing Market and Supervisory Assessments of Bank Performance: Who Knows What When?
Allen N. Berger, Sally M. Davies, and Mark J. Flannery

Abstract: We compare the timeliness and accuracy of government supervisors versus market participants in assessing the condition of large U.S. bank holding companies. We find that supervisors and bond rating agencies both have some prior information that is useful to the other. In contrast, supervisory assessments and equity market indicators are not strongly interrelated. We also find that supervisory assessments are much less accurate overall than both bond and equity market assessments in predicting future changes in performance, but supervisors may be more accurate when inspections are recent. To some extent, these results may reflect differing incentives of the parties.

Keywords: Bank, supervision, market discipline

Full paper (3869 KB PDF)

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Last update: August 25, 1998