Resource Allocation in Bank Supervision: Trade-offs and Outcomes

Thomas Eisenbach, David Lucca and Robert Townsend

No 769, Staff Reports from Federal Reserve Bank of New York

Abstract: We estimate a structural model of resource allocation on work hours of Federal Reserve bank supervisors to disentangle how supervisory technology, preferences, and resource constraints impact bank outcomes. We find a significant effect of supervision on bank risk and large technological scale economies with respect to bank size. Consistent with macro-prudential objectives, revealed supervisory preferences disproportionately weight larger banks, especially post-2008 when a resource reallocation to larger banks increased risk on average across all banks. Shadow cost estimates show tight resources around the financial crisis and counterfactuals indicate that binding constraints have large effects on the distribution of bank outcomes.

Keywords: bank regulation; time use; bank supervision; monitoring (search for similar items in EconPapers)
JEL-codes: D82 G21 G28 (search for similar items in EconPapers)
Pages: 74 pages
Date: 2016-03-01
New Economics Papers: this item is included in nep-cba
Note: Revised April 2021. Previous title: "The Economics of Bank Supervision."
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Citations: View citations in EconPapers (15)

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Related works:
Journal Article: Resource Allocation in Bank Supervision: Trade‐Offs and Outcomes (2022)
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