Can State Bank Examination Data Replace FDIC Examination Visits

Mark Flannery

Rodney L. White Center for Financial Research Working Papers from Wharton School Rodney L. White Center for Financial Research

Abstract: In order to compare asset classification data generated by FDIC and state examiners, safety and soundness examination data were compared for 96 California insured nonmember banks that had been examined independently by the state and FDIC within seven months of one another. Two major conclusions emerge. First, regression analysis indicated that examination conclusions can be replicated accurately across individuals and agencies. (This does not imply that examiners generate new or economically valuable information, though replicability is a necessary condition for that conclusion.) Second, it is shown how FDIC might utilize state examination reports to determine which bank’s safety and soundness examinations can be waived without compromising its supervisory responsibilities. Significant supervisory resources could be saved or re-allocated if FDIC were to accept selected state examination reports in lieu of its own.

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