Comparing Market and Supervisory Assessments of Bank Performance: Who Knows What When?

Posted: 11 Jul 2000

See all articles by Allen N. Berger

Allen N. Berger

University of South Carolina - Darla Moore School of Business; Wharton Financial Institutions Center; European Banking Center

Sally M. Davies

Government of the United States of America - International Banking Section

Mark J. Flannery

University of Florida - Department of Finance, Insurance and Real Estate

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Abstract

We compare the timeliness and accuracy of government supervisors versus market participants in assessing the condition of large U.S. bank holding companies. We find that supervisors and bond rating agencies both have some prior information that is useful to the other. In contrast, supervisory assessments and equity market indicators are not strongly interrelated. We also find that supervisory assessments are much less accurate overall than both bond and equity market assessments in predicting future changes in performance, but supervisors may be more accurate when inspections are recent. To some extent, these results may reflect differing incentives of the parties.

JEL Classification: G21, G28, G38, E58

Suggested Citation

Berger, Allen N. and Davies, Sally M. and Flannery, Mark Jeffrey, Comparing Market and Supervisory Assessments of Bank Performance: Who Knows What When?. Journal of Money, Credit and Banking, Vol. 32, No. 3, Part II, August 2000, What Should Central Banks Do?: A conference sponsored by the Federal Reserve Bank of Cleveland, ed. Joseph G. Haubrich, October 27-29, 1999. Available at SSRN: https://ssrn.com/abstract=227848

Allen N. Berger (Contact Author)

University of South Carolina - Darla Moore School of Business ( email )

1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States
803-576-8440 (Phone)
803-777-6876 (Fax)

Wharton Financial Institutions Center

Philadelphia, PA 19104-6367
United States

European Banking Center

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Sally M. Davies

Government of the United States of America - International Banking Section ( email )

20th & C Streets NW
Washington, DC 20551
United States
202-452-2908 (Phone)
202-452-6424 (Fax)

Mark Jeffrey Flannery

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States
352-392-3184 (Phone)
352-392-0103 (Fax)

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