The impact of supervision on bank performance

Hirtle, Beverly; Kovner, Anna; Plosser, Matthew

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The impact of supervision on bank performance

Abstract: We explore the impact of supervision on the riskiness, profitability, and growth of U.S. banks. Using data on supervisors? time use, we demonstrate that the top-ranked banks by size within a supervisory district receive more attention from supervisors, even after controlling for size, complexity, risk, and other characteristics. Using a matched sample approach, we find that these top-ranked banks that receive more supervisory attention hold less risky loan portfolios and are less volatile and less sensitive to industry downturns, but do not have slower growth or profitability. Our results underscore the distinct role of supervision in mitigating banking sector risk.

Keywords: bank supervision; bank regulation; bank performance;

JEL Classification: G21; G28;