Abstract

We examine whether equity market variables, such as stock returns and equity-based default probabilities, are useful to U.S. bank supervisors for assessing the condition of domestic bank holding companies. We develop a model of supervisory ratings that combines supervisory and equity market information. We find that the model's forecasts anticipate supervisory rating changes by up to four quarters. Relative to simply using supervisory variables, the inclusion of equity market variables in the model does not improve forecast accuracy. However, we argue that equity market information should still be useful for forecasting supervisory ratings and should be incorporated into supervisory monitoring models.

pdf

Additional Information

ISSN
1538-4616
Print ISSN
0022-2879
Pages
pp. 1043-1067
Launched on MUSE
2005-03-22
Open Access
No
Archive Status
Archived 2007
Back To Top

This website uses cookies to ensure you get the best experience on our website. Without cookies your experience may not be seamless.