The Economics of Bank Supervision

Thomas Eisenbach, David Lucca and Robert Townsend

No 22201, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study bank supervision by combining a theoretical model distinguishing supervision from regulation and a novel dataset on work hours of Federal Reserve supervisors. We highlight the trade-offs between the benefits and costs of supervision and use the model to interpret the relation between supervisory efforts and bank characteristics observed in the data. More supervisory resources are spent on larger, more complex, and riskier banks. However, hours increase less than proportionally with bank size, suggesting the presence of technological scale economies in supervision. The data also show reallocation of supervisory hours at times of stress and in the post-2008 enhanced supervisory framework for large banks, providing evidence of constraints on supervisory resources. Finally, we show theoretically limits to assessing supervisory success based on ex-post outcomes, as well as benefits of ex-ante commitment policies.

JEL-codes: D82 G21 G28 (search for similar items in EconPapers)
Date: 2016-04
New Economics Papers: this item is included in nep-cba and nep-pke
Note: CF
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Citations: View citations in EconPapers (32)

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