Cole, Rebel A. and Gunther, Jeffery W. (1995): A CAMEL rating's shelf life.
Download (90Kb) | Preview
How quickly do the CAMEL ratings regulators assign to banks during on-site examinations become "stale"? One measure of the information content of CAMEL ratings is their ability to discriminate between banks that will fail and those that will survive. To assess the accuracy of CAMEL ratings in predicting failure, Rebel Cole and Jeffery Gunther use as a benchmark an offsite monitoring system based on publicly available accounting data. Their findings suggest that, if a bank has not been examined for more than two quarters, off-site monitoring systems usually provide a more accurate indication of survivability than its CAMEL rating. The lower predictive accuracy for CAMEL ratings “older” than two quarters causes the overall accuracy of CAMEL ratings to fall substantially below that of off-site monitoring systems. The higher predictive accuracy of off-site systems derives from both their timeliness—an updated off-site rating is available for every bank in every quarter—and the accuracy of the financial data on which they are based. Cole and Gunther conclude that off-site monitoring systems should continue to play a prominent role in the supervisory process, as a complement to on-site examinations.
|Item Type:||MPRA Paper|
|Original Title:||A CAMEL rating's shelf life|
|Keywords:||bank; bank failure; CAMEL; CAMEL rating; commercial bank; offsite supervision|
|Subjects:||G - Financial Economics > G1 - General Financial Markets > G18 - Government Policy and Regulation
G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation
G - Financial Economics > G3 - Corporate Finance and Governance > G33 - Bankruptcy; Liquidation
G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages
|Depositing User:||Rebel Cole|
|Date Deposited:||30. Aug 2010 00:36|
|Last Modified:||12. Feb 2013 15:19|
Berger, Allen N., and Sally M. Davies (1994), "The Information Content of Bank Examinations," Finance and Economics Discussion Series, no. 20 (Washington, D.C.: Board of Governors of the Federal Reserve System, July).
Cole, Rebel A., Barbara G. Cornyn, and Jeffery W. Gunther (1995), "FIMS: A New Monitoring System for Banking Institutions," Federal Reserve Bulletin, January, 1–15.
Gilbert, R. Alton (1993), "Implications of Annual Examinations for the Bank Insurance Fund, Federal Reserve Bank of St. Louis Review, 35–52.
———, and Sangkyun Park (1994), "The Value of Early Warning Models in Bank Supervision," (Federal Reserve Bank of St. Louis, mimeo).
Jones, David S., and Kathleen Kuester King (1995), "The Implementation of Prompt Corrective Action: An Assessment," Journal of Banking and Finance 19 (June): 491–510.
Maddala, G. S. (1983), Limited-Dependent and Qualitative Variables in Econometrics (Cambridge: Cambridge University Press), 22–27.
Putnam, Barron H. (1983), "Early Warning Systems and Financial Analysis in Bank Monitoring: Concepts of Financial Monitoring," Federal Reserve Bank of Atlanta Economic Review, November, 6–13.