How Do Joint Supervisors Examine Financial Institutions? The Case of State Banks
46 Pages Posted: 8 Jul 2010 Last revised: 20 Nov 2010
Date Written: 2010
This paper studies what determines whether federal and state supervisors examine state banks independently or together. The results suggest that supervisors coordinate examinations in order to support states with lower budgets and capabilities and more banks to supervise. I find that states with larger budgets examine more banks independently, that they accommodate changes in the number of banks mostly through the number of examinations with a federal supervisor and that, when examining banks together, state banking departments that have earned quality accreditation are more likely to write conclusion reports separately from federal supervisors.
The results also indicate that regulation impacts joint supervision substantially by determining the characteristics of banks. I show that independent examinations decrease with branch deregulation, which is consistent with the facts that this reform consolidated banks within fewer independent firms and that state and federal supervisors are more likely to examine large and complex institutions together.
Keywords: Bank Supervision, Bank Regulation, Bank Examination, State Banks
JEL Classification: G21, G28
Suggested Citation: Suggested Citation