The information content of bank examinations

We identify three types of Information from bank examinations-"auditing inf ormation" from verifying the honesty and accuracy of the bank's books, ''re gulatory discipline information'' about the treatment of the bank by regula tors, and "private information" about bank condition. We estimate these inf ormation effects by comparing the cumulative abnormal market returns associ ated with examinations in which the CAMEL rating remained unchanged, improv ed, and worsened. All three information effects are found to be greater for banks entering the examination process with unsatisfactory ratings from pr ior examinations. The only consistently strong effect found is that examina tion downgrades appear to reveal unfavorable private information about bank condition. The evidence also suggests that the information may reach the m arket in part through loan quality data released in quarterly financial sta tements.