How Might Financial Market Information Be Used for Supervisory Purpose
This paper addresses three public policy questions related to how supervisors might use this financial market information. To address the first question, the paper summarizes the academic literature on the topic and presents empirical results using BHC stock returns and bond spreads. It addresses the second question by using forecasts generated by an off-site monitoring model developed by Krainer and Lopez (2001). Finally, it examines the third question by studying the model's ratio of correct forecasts to incorrect forecasts.