Estimating changes in supervisory standards and their economic effects

Abstract

The disappointingly slow recovery in the U.S. from the depths of the financial crisis once again focused attention on the relationship between financial frictions and economic growth. Some bankers and borrowers suggested that unnecessarily tight supervisory policies were a constraint on new lending that hindered the recovery. This paper explores one aspect of supervisory policy: whether the standards used to assign commercial bank CAMELS ratings have changed materially over time . Models incorporating time-varying parameters or economy-wide variables suggest that standards used in the assignment of CAMELS ratings over the post-crisis period generally were in line with historical experience. Indeed, each of the models used suggests that the variation in supervisory standards has been relatively small in absolute terms over most of the sample period. However, we show that when this measure of supervisory stringency becomes elevated, it has a noticeable dampening effect on lending activity in subsequent quarters.JEL Classification: G21, G28, L25

Cooperative banks: What do we know about competition and risk preferences?

“…In all cases, the results remain statistically and economically significant, consistent with our main findings, and suggesting that these concerns do not drive our main results. The results for CAMELS indicators are similar to those found in the literature (see for example, Acharya et al (2017), Bassett et al (2015) and Duchin and Sosyura, 2014).…”

Russian Bank Credit Ratings and Bank License Withdrawal 2012—2016

“…В моделях рейтингов необходимо также учитывать факторы макроэкономического окружения, поскольку те или другие значения финансовых показателей могут иметь различное влияние при разных состояниях экономической среды, в которой функционируют банки. Макроэкономические показатели включались в модели рейтингов в работах (Карминский, Пересецкий, 2007;Bassett et al, 2015;Ianotta et al, 2013;Gogas et al, 2014). В данной работе для учета макроэкономи-ческого окружения были использованы показатели по годам наблюде-ний (см., например, Belotti et al, 2011), так как модели с различными макроэкономическими показателями и модели с данными по 17 квар-талам наблюдений (наиболее полный учет макроэкономического окру-жения) показали схожие результаты.…”

“…В работе (Bassett et al, 2015) этот рейтинг анализируется с помощью моделей панельных данных ordered probit со случайными эффектами на периоде 1991-2013 гг. Показано, что включение в модель макроэ-кономических переменных в большинстве рассмотренных моделей устраняет эффект ужесточения требований регулятора к банкам.…”

Is Bank Supervision Effective? Evidence from the Allowance for Loan and Lease Losses

“…I construct the rest of the covariates to be closely related to the CAMELS rating system, following the variable definitions in Bassett et al (2015), Falato and Scharfstein (2016), and the Uniform Bank Performance Report. The CAMELS rating system is the only uniform rating system to evaluate a bank's managerial, operational, financial, and compliance performance.…”