Supervising Failing Banks

Sergio Correia, Stephan Luck and Emil Verner

No 1168, Staff Reports from Federal Reserve Bank of New York

Abstract: This paper studies the role of banking supervision in anticipating, monitoring, and disciplining failing banks. We document that supervisors anticipate most bank failures with a high degree of accuracy. Supervisors play an important role in requiring troubled banks to recognize losses, taking enforcement actions, and ultimately closing failing banks. To establish causality, we exploit exogenous variation in supervisory strictness during the Global Financial Crisis. Stricter supervision leads to more loss recognition, reduced dividend payouts, and an increase in the likelihood and speed of closure. Increased strictness entails a trade-off between a lower resolution cost to the FDIC and reduced credit.

Keywords: banking supervision; financial stability; financial regulation (search for similar items in EconPapers)
JEL-codes: G01 G21 N20 N24 (search for similar items in EconPapers)
Pages: 81
Date: 2025-10-01
New Economics Papers: this item is included in nep-reg
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Working Paper: Supervising Failing Banks (2025)
Working Paper: Supervising Failing Banks (2025)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fednsr:101954

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DOI: 10.59576/sr.1168

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