The Effects of Bank Regulator Switching on Supervisory Ratings

Marcelo Rezende
2011 Social Science Research Network  
I examine whether commercial banks improve their supervisory ratings by switching regulators. I establish a causal effect from switching on ratings using an empirical strategy that controls for selection bias. Regulators rate banks better after they change charters and this effect is large for both national and state charters. Also, banks that switched charters in the past fail more often than others even after controlling for their ratings. These results suggest that banks can arbitrage
more » ... an arbitrage ratings by switching regulators and are consistent with regulators competing for banks by rating incoming ones better than similar banks that they currently supervise.
doi:10.2139/ssrn.1926324 fatcat:ue5h3naimfetdcdqmhqwqbgia4