Chapter

Did U.S. Bank Supervisors Get Tougher during the Credit Crunch? Did They Get Easier during the Banking Boom? Did It Matter to Bank Lending?

Allen N. Berger, Margaret K. Kyle and Joseph M. Scalise

in Prudential Supervision

Published by University of Chicago Press

Published in print January 2002 | ISBN: 9780226531885
Published online February 2013 | e-ISBN: 9780226531939 | DOI: http://dx.doi.org/10.7208/chicago/9780226531939.003.0009
Did U.S. Bank Supervisors Get Tougher during the Credit Crunch? Did They Get Easier during the Banking Boom? Did It Matter to Bank Lending?

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This chapter discusses some reasons to suspect that supervisory changes over the last decade or so may have had significant effects on the overall lending of the U.S. banking industry. It investigates this possibility by testing three hypotheses about whether supervisors changed their policies and whether these policy changes affected bank lending behavior: Hypothesis 1: U.S. bank supervisors got tougher on banks during the credit crunch period of 1989–92, treating banks of a given financial condition more harshly than in previous years. Hypothesis 2: U.S. bank supervisors got easier on banks during the boom period of 1993–98, treating banks of a given financial condition less harshly than in prior periods. Hypothesis 3: Changes in supervisory toughness, if they did occur, changed bank lending behavior in the predicted directions. These hypotheses are tested using information on the supervisory process, confidential data on classified assets and CAMEL ratings from bank examinations, bank balance sheet and income data, and other variables for the condition of the bank, its state, and its region over the period 1986–98. A commentary and discussion summary are also included at the end of the chapter.

Keywords: bank supervision; supervisory changes; bank lending; banking industry; CAMEL ratings

Chapter.  23484 words.  Illustrated.

Subjects: Financial Markets

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