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Is Bank Supervision Effective? Evidence from the Allowance for Loan and Lease Losses

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  • Yang, Ling

Abstract

I investigate whether bank supervision is effective in enforcing written rules on the estimations of the allowance for loan and lease losses (ALLL) consistently between public and private banks, which have different intensity of incentives to misreport the ALLL. Results suggest that bank supervision of the ALLL estimations was effective between 2002 and 2012, but has become lax recently. State-chartered public banks underestimated the ALLL by about 13% annually between 2013 and 2015. Bank regulators are willing to cater to banks’ private interests when the economic environment is good and the regulatory emphasis is weak, but not during the crisis.

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  • Yang, Ling, 2016. "Is Bank Supervision Effective? Evidence from the Allowance for Loan and Lease Losses," MPRA Paper 75761, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:75761
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    References listed on IDEAS

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    Cited by:

    1. Alessi, Lucia & Bruno, Brunella & Carletti, Elena & Neugebauer, Katja, 2019. "What drives bank coverage ratios: Evidence from the euro area," JRC Working Papers in Economics and Finance 2019-14, Joint Research Centre, European Commission.

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    More about this item

    Keywords

    commercial banks; bank regulation; bank supervision; bank accounting and disclosure; allowance for loan and lease losses (ALLL); reporting incentives;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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