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The impact of supervision on bank performance

Beverly Hirtle, Anna Kovner and Matthew Plosser ()

No 768, Staff Reports from Federal Reserve Bank of New York

Abstract: We introduce a novel instrument to identify exogenous variation in the intensity of supervision across U.S. bank holding companies based on the size rank of a bank within its Federal Reserve district. We demonstrate that supervisors record more hours at the largest banks in a district, even after controlling for size and other characteristics. Using a matched sample approach, we find that these “top” banks are less volatile, hold less risky loan portfolios, and engage in more conservative reserving practices, but do not have lower earnings or slower asset growth. Given that these firms are subject to similar rules, our results support the notion that supervision has a distinct role as a complement to regulation.

Keywords: bank supervision; bank regulation; bank performance (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban
Date: 2016-03-01, Revised 2016-07-01
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