Insight

Bank on them

Reserchers study the performance of US state commercial banks in federal and state supervision

The US state chartered commercial banks are alternately supervised by federal and state regulators. Each regulator supervises a bank for a specified period by rotation. Sumit Agarwal, David Lucca, Amit Seru and Francesco Trebbi of National Bureau of Economic Research have found that federal regulators are stricter than their state counterparts, with banks reporting higher non-performing assets, more bad debts, higher regulatory capital ratios and lower return on assets when checked by federal supervisors. This suggests that inconsistent oversight can hamper regulation of banks so that corrective action is delayed. It also makes the banks show costly variability of operations [in different years].

 

Title: Working Paper No. 17736;

Source: National Bureau of Economic Research

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