Comparing market and supervisory assessments of bank performance: Who knows what when?

This paper compares the timeliness and accuracy of (confidential) governmen t assessments of bank condition against market evaluations of large U.S. ba nk holding companies. We find that supervisors and bond rating agencies bot h acquire some information that would help the other group forecast changes in bank condition. In contrast, supervisory assessments and equity market indicators are not strongly interrelated. Furthermore, supervisory assessme nts are generally less accurate than either stock or bond market indicators in predicting future changes in performance, except when those assessments derive from a recent on-site inspection visit. To some extent, these findi ngs are consistent with the various parties' differing incentives.