The Information Content of Bank Exam Ratings and Subordinated Debt Prices

Do supervisory examinations of large commercial banking firms produce useful information not already reflected in market prices? To investigate this question, we apply a new research methodology to data on bank exam ratings and the subordinated debt risk spreads of their parent holding companies. We...

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Bibliographic Details
Published in:Journal of money, credit and banking credit and banking, 2001-11, Vol.33 (4), p.900-925
Main Authors: Deyoung, Robert, Flannery, Mark J., Lang, William W., Sorescu, Sorin M.
Format: Article
Language:English
Subjects:
Bank assets
Bank examinations
Bank examiners
Bank holding companies
Bank markets
Bank ratings
Bank regulation
Banking
Banking industry
Banking regulation
Banks
Banks (Finance)
Bond markets
Bond ratings
CAMELS bank rating system
Commercial banks
Equity
Finance
Financial holding companies
Financial information
Information services
Information services industry
Investors
Market prices
Onsite
Pricing
Rates of return
Ratings & rankings
Regression analysis
Regulation of financial institutions
Research methodology
Risk premiums
Studies
Supervisors
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Summary:Do supervisory examinations of large commercial banking firms produce useful information not already reflected in market prices? To investigate this question, we apply a new research methodology to data on bank exam ratings and the subordinated debt risk spreads of their parent holding companies. We find that government exams do produce new, value-relevant information; that debenture prices do not immediately reflect this information; and that the market prices the likely regulatory actions implied by this information. These results have implications for market versus regulatory discipline at large banking firms, and for proposals to make subordinated debt mandatory for these firms.
ISSN:0022-2879
1538-4616
DOI:10.2307/2673928