WORKING PAPER SERIES
Supervisory Discipline and Bank Capital Management:
Evidence from Before, During, and After the Crisis
Gary Fissel
Federal Deposit Insurance Corporation
Stefan Jacewitz
Federal Deposit Insurance Corporation
Myron Kwast
Federal Deposit Insurance Corporation
Christof Stahel
U.S. Securities and Exchange Commission
December 2017
Last Updated: June 2018
Previously circulated as
“Does Supervisory Discipline Reduce Bank Risk? Evidence from Before, During and After the Crisis”
FDIC CFR WP 2017-05
fdic.gov/cfr
NOTE: Staff working papers are preliminary materials circulated to stimulate discussion and critical comment. The analysis,
conclusions, and opinions set forth here are those of the author(s) alone and do not necessarily reflect the views of the
Federal Deposit Insurance Corporation. References in publications to this paper (other than acknowledgement) should be
cleared with the author(s) to protect the tentative character of these papers.
Supervisory Discipline and Bank Capital Management:
Evidence from Before, During, and After the Crisis
Gary Fissel
Federal Deposit Insurance Corporation
Stefan Jacewitz
Federal Deposit Insurance Corporation
Myron Kwast
Federal Deposit Insurance Corporation
Christof Stahel
U.S. Securities and Exchange Commission
December 2017
Last Updated: June 2018
Previously circulated as
“Does Supervisory Discipline Reduce Bank Risk? Evidence from Before, During and After the Crisis”
FDIC CFR WP 2017-05
fdic.gov/cfr
NOTE: Staff working papers are preliminary materials circulated to stimulate discussion and critical comment. The analysis,
conclusions, and opinions set forth here are those of the author(s) alone and do not necessarily reflect the views of the
Federal Deposit Insurance Corporation. References in publications to this paper (other than acknowledgement) should be
cleared with the author(s) to protect the tentative character of these papers.
Supervisory Discipline and Bank Capital Management:
Evidence from Before, During and After the Crisis∗
Gary Fissel† Stefan Jacewitz† Myron Kwast
Christof Stahel‡
June 13, 2018
Abstract
This paper investigates the effect of supervisory discipline on bank capital
management over the years immediately before, during and just after the
recent crisis. It is the first study to consider the effects of informal supervisory
enforcement actions. These actions are not only much more numerous than
the formal enforcement actions used in previous studies, but they are also
typically confidential whereas formal enforcement actions must be public.
Pre-crisis, results support the capital management effects of informal actions
and find that using only information on formal actions leads to substantial
bias. During the crisis, formal actions became a much more effective tool for
slowing declines in a bank’s capital ratios and informal actions were relatively
less potent. TARP capital also helped quicken a bank’s adjustment speed
to its capital target during the crisis, but appears to slow this speed post-
crisis. Post-crisis, while it appears that the effects of enforcement actions are
moving back toward the “normal” times of the pre-crisis period, the statistical
relationship between supervisory discipline and capital management is less
clear.
Keywords Banks; Capital Regulation; Enforcement Actions; Regulatory Dis-
cipline
∗The authors would like to thank participants in seminars at the FDIC’s Center for Financial
Research, Troy Kravitz, Mark Kutzbach, and two anonymous referees for their useful comments
and feedback. Any remaining errors belong solely to the authors.
†Federal Deposit Insurance Corporation, Washington, D.C. Staff working papers are preliminary
materials circulated to stimulate discussion and critical comment. The analysis, conclusions, and
opinions set forth here are those of the authors alone and do not necessarily reflect the views of
the Federal Deposit Insurance Corporation. References in publications to this paper (other than
acknowledgment) should be cleared with the authors to protect the tentative character of these
papers.
‡U.S. Securities and Exchange Commission, Washington, D.C.; The Securities and Exchange
Commission, as a matter of policy, disclaims responsibility for any private publication or statement
by any of its employees. The views expressed herein are those of the author and do not necessarily
reflect the views of the Commission or of the author’s colleagues on the staff of the Commission.
Evidence from Before, During and After the Crisis∗
Gary Fissel† Stefan Jacewitz† Myron Kwast
Christof Stahel‡
June 13, 2018
Abstract
This paper investigates the effect of supervisory discipline on bank capital
management over the years immediately before, during and just after the
recent crisis. It is the first study to consider the effects of informal supervisory
enforcement actions. These actions are not only much more numerous than
the formal enforcement actions used in previous studies, but they are also
typically confidential whereas formal enforcement actions must be public.
Pre-crisis, results support the capital management effects of informal actions
and find that using only information on formal actions leads to substantial
bias. During the crisis, formal actions became a much more effective tool for
slowing declines in a bank’s capital ratios and informal actions were relatively
less potent. TARP capital also helped quicken a bank’s adjustment speed
to its capital target during the crisis, but appears to slow this speed post-
crisis. Post-crisis, while it appears that the effects of enforcement actions are
moving back toward the “normal” times of the pre-crisis period, the statistical
relationship between supervisory discipline and capital management is less
clear.
Keywords Banks; Capital Regulation; Enforcement Actions; Regulatory Dis-
cipline
∗The authors would like to thank participants in seminars at the FDIC’s Center for Financial
Research, Troy Kravitz, Mark Kutzbach, and two anonymous referees for their useful comments
and feedback. Any remaining errors belong solely to the authors.
†Federal Deposit Insurance Corporation, Washington, D.C. Staff working papers are preliminary
materials circulated to stimulate discussion and critical comment. The analysis, conclusions, and
opinions set forth here are those of the authors alone and do not necessarily reflect the views of
the Federal Deposit Insurance Corporation. References in publications to this paper (other than
acknowledgment) should be cleared with the authors to protect the tentative character of these
papers.
‡U.S. Securities and Exchange Commission, Washington, D.C.; The Securities and Exchange
Commission, as a matter of policy, disclaims responsibility for any private publication or statement
by any of its employees. The views expressed herein are those of the author and do not necessarily
reflect the views of the Commission or of the author’s colleagues on the staff of the Commission.