Sending firm messages: text mining letters from PRA supervisors to banks and building societies they regulate

David Bholat, James Brookes (), Chris Cai (), Katy Grundy () and Jakob Lund ()
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James Brookes: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH
Chris Cai: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH
Katy Grundy: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH
Jakob Lund: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH

No 688, Bank of England working papers from Bank of England

Abstract: Our paper analyses confidential letters sent from the Bank of England’s Prudential Regulation Authority (PRA) to banks and building societies it supervises. These letters are a ‘report card’ written to firms annually, and are arguably the most important, regularly recurring written communication sent from the PRA to firms it supervises. Using a mix of methods, including a machine learning algorithm called random forests, we explore whether the letters vary depending on the riskiness of the firm to whom the PRA is writing. We find that they do. We also look across the letters as a whole to draw out key topical trends and confirm that topics important on the post-crisis regulatory agenda such as liquidity and resolution appear frequently. And we look at how PRA letters differ from the letters written by the PRA’s predecessor, the Financial Services Authority. We find evidence that PRA letters are different, with a greater abundance of forward-looking language and directiveness, reflecting the shift in supervisory approach that has occurred in the United Kingdom following the financial crisis of 2007–09.

Keywords: Bank of England Prudential Regulation Authority; banking supervision; text mining; machine learning; random forests; Financial Services Authority; central bank communications (search for similar items in EconPapers)
JEL-codes: C55 C80 E58 G28 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2017-10-27
New Economics Papers: this item is included in nep-bec, nep-big and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0688

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