Efficient Risk-Taking and Regulatory Covenant Enforcement in a Deregulated Banking Industry

This paper analyzes the safety and soundness (CAMEL) ratings assigned by bank supervisors to commercial banks, and searches for evidence that these ratings reflect not just the level of risk taken by banks, but also the risk-taking efficiency of those banks (i.e., whether taking an increased level of risk generates higher expected returns). The paper finds that supervisors do distinguish between the risk-taking of efficient banks and the risk-taking of inefficient banks, and that they permit efficient banks more latitude in their investment strategies than inefficient banks.

Provided by: Rutgers, State University of New Jersey Topic: Software Date Added: Jun 2000 Format: PDF

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