Do depositors care about enforcement actions?

Since 1990, federal bank supervisors have publicly announced formal enforcement actions. This change in regime provides a natural laboratory to test two propositions: (1) claims by economists that putting confidential supervisory information in the public domain will enhance market discipline and (2) claims by bank supervisors that releasing such data will spark runs. To evaluate these propositions, we measure depositor reaction to 87 Federal Reserve announcements of enforcement actions. We compare deposit growth rates and yield spreads before and after the announcements at the sample banks and a control group of peer banks. The data show no evidence of unusual deposit withdrawals or spread increases at the sample banks following the announcements of formal actions. These results suggest that public announcements of enforcement actions did not spark bank runs or enhance depositor discipline. Apparently, depositors did not care a great deal about our sample actions.Bank supervision ; Deposit insurance

Falsification testing for usability inspection method assessment

We need more reliable usability inspection methods (UIMs), but assessment of UIMs has been unreliable [5]. We can only reliably improve UIMs if we have more reliable assessment. When assessing UIMs, we need to code analysts’ predictions as true or false positives or negatives, or as genuinely missed problems. Defenders of UIMs often claim that false positives cannot be accurately coded, i.e., that a prediction is true but has never shown up through user testing or other validation approaches. We show this and similar claims to be mistaken by briefly reviewing methods for reliable coding of each of five types of prediction outcome. We focus on falsification testing, which allows confident coding of false positives

Can feedback from the jumbo CD market improve bank surveillance?

Banks and banking

Could a CAMELS downgrade model improve off-site surveillance?

The Federal Reserve’s off-site surveillance system includes two econometric models that are collectively known as the System for Estimating Examination Ratings (SEER). One model, the SEER risk rank model, uses the latest financial statements to estimate the probability that each Fed-supervised bank will fail in the next two years. The other component, the SEER rating model, uses the latest financial statements to produce a “shadow” CAMELS rating for each supervised bank. Banks identified as risky by either model receive closer supervisory scrutiny than other state-member banks.> Because many of the banks flagged by the SEER models have already tumbled into poor condition and, hence, would already be receiving considerable supervisory attention, we developed an alternative model to identify safe-and-sound banks that potentially are headed for financial distress. Such a model could help supervisors allocate scarce on- and off-site resources by pointing out banks not currently under scrutiny that need watching.> It is possible, however, that our alternative model improves little over the current SEER framework. All three models—the SEER risk rank model, the SEER rating model, and our downgrade model—produce ordinal rankings based on overall risk. If the financial factors that explain CAMELS downgrades differ little from the financial factors that explain failures or CAMELS ratings, then all three models will produce similar risk ratings and, hence, similar watch lists of one- and two-rated banks.> We find only slight differences in the ability of the three models to spot emerging financial distress among safe-and-sound banks. In out-of-sample tests for 1992 through 1998, the watch lists produced by the downgrade model outperform the watch lists produced by the SEER models by only a small margin. We conclude that, in relatively tranquil banking environments like the 1990s, a downgrade model adds little value in off-site surveillance. We caution, however, that a downgrade model might prove useful in more turbulent banking times.Bank supervision

Preliminary design of the Shuttle-C avionics recovery system

The analysis done in developing a recovery system for the Shuttle-C cargo vehicle is presented. This recovery system is comprised of a reentry capsule which houses the vehicles avionics. The avionics are contained in a single package which is extracted from the capsule by the parachute recovery system. The Shuttle-C will be able to satisfy NASA's design and mission requirements. Included, is an analysis of the structural, thermal protection, and parachute recovery systems. A discussion of the merits of the proposed system is also included