Working Paper
Supervising Failing Banks
Abstract: This paper studies the role of banking supervision in anticipating, monitoring, and disciplining failing banks. We document that supervisors anticipate most bank failures with a high degree of accuracy. Supervisors play an important role in requiring troubled banks to recognize losses, taking enforcement actions, and ultimately closing failing banks. To establish causality, we exploit exogenous variation in supervisory strictness during the Global Financial Crisis. Stricter supervision leads to more loss recognition, reduced dividend payouts, and an increase in the likelihood and speed of closure. Increased strictness entails a trade-off between a lower resolution cost to the FDIC and reduced credit.
JEL Classification: G01; N20; N24; G28; K23; E44;
https://doi.org/10.21144/wp25-10
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https://www.richmondfed.org/-/media/RichmondFedOrg/publications/research/working_papers/2025/wp25-10.pdf
Description: Working Paper
Bibliographic Information
Provider: Federal Reserve Bank of Richmond
Part of Series: Working Paper
Publication Date: 2025-10-15
Number: 25-10