Supervisory Information and the Frequency of Bank Examinations

19 Pages Posted: 2 Aug 2007

See all articles by Beverly Hirtle

Beverly Hirtle

Federal Reserve Bank of New York - Banking Studies Department

Jose A. Lopez

Federal Reserve Bank of San Francisco

Abstract

Bank supervisors need timely and reliable information about the financial condition and risk profile of banks. A key source of this information is the on-site, full-scope bank examination. This article evaluates the frequency with which supervisors examine banks by assessing the decay rate of the private supervisory information gathered during examinations. The analysis suggests that this information ceases to provide a useful picture of a bank's current condition after six to twelve quarters. The decay rate appears to be faster in years when the banking industry experiences financial difficulties, and it is significantly faster for troubled banks than for healthy ones. Thus, the analysis suggests that the annual examination frequency currently mandated by law is reasonable, particularly during times of financial stress for the banking industry.

Keywords: bank supervision, bank examination

JEL Classification: G21, G28, C53

Suggested Citation

Hirtle, Beverly and Lopez, Jose Antonio, Supervisory Information and the Frequency of Bank Examinations. Economic Policy Review, Vol. 5, No. 1, April 1999. Available at SSRN: https://ssrn.com/abstract=1004357

Beverly Hirtle (Contact Author)

Federal Reserve Bank of New York - Banking Studies Department ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-7544 (Phone)
212-720-8363 (Fax)

Jose Antonio Lopez

Federal Reserve Bank of San Francisco ( email )

101 Market Street
San Francisco, CA 94105
United States
415-977-3894 (Phone)
415-974-2168 (Fax)

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