The Impact of Supervision on Bank Performance |
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| Authors: | BEVERLY HIRTLE ANNA KOVNER MATTHEW PLOSSER |
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| Institution: | Beverly Hirtle, Anna Kovner, and Matthew Plosser are with the Federal Reserve Bank of New York. The authors thank Maya Bidanda, Angela Deng, Brandon Zborowski, and Samantha Zeller for excellent research assistance. The authors thank Mark Carey, Stefan Lewellen, Mark Levonian, Antoinette Schoar, Philip Strahan, Vish Viswanathan, two anonymous referees, and seminar participants at the NY Fed, AFA Annual Meetings, Bank of France, NBER Summer Institute, and FDIC/JFSR Bank Research Conference for helpful comments. The views in this paper are those of the authors and do not necessarily reflect the views of the Federal Reserve Bank of New York or of the Federal Reserve System. The paper was subject to review when it was issued as a Staff Report by the Federal Reserve Bank of New York. A more detailed disclosure statement is available in the supplementary information section of the article. |
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| Abstract: | We explore the impact of supervision on the riskiness, profitability, and growth of U.S. banks. Using data on supervisors' time use, we demonstrate that the top-ranked banks by size within a supervisory district receive more attention from supervisors, even after controlling for size, complexity, risk, and other characteristics. Using a matched sample approach, we find that these top-ranked banks that receive more supervisory attention hold less risky loan portfolios, are less volatile, and are less sensitive to industry downturns, but do not have lower growth or profitability. Our results underscore the distinct role of supervision in mitigating banking sector risk. |
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