Incorporating Equity Market Information into Supervisory Monitoring Models
John Krainer () and
Jose Lopez ()
Journal of Money, Credit and Banking, 2004, vol. 36, issue 6, pages 1043-67
We examine whether equity market variables, such as stock returns and equity-based default probabilities, are useful to U.S. bank supervisors for assessing the condition of domestic bank holding companies. We develop a model of supervisory ratings that combines supervisory and equity market information. We find that the model's forecasts anticipate supervisory rating changes by up to four quarters. Relative to simply using supervisory variables, the inclusion of equity market variables in the model does not improve forecast accuracy. However, we argue that equity market information should still be useful for forecasting supervisory ratings and should be incorporated into supervisory monitoring models.
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Working Paper: Incorporating equity market information into supervisory monitoring models (2001)
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Persistent link: /RePEc:mcb:jmoncb:v:36:y:2004:i:6:p:1043-67
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