Can bank supervisors rely on market data? A critical assessment from a Swiss perspective

Urs W. Birchler and Matteo Facchinetti

Issue
2006-08

Pages
35

JEL classification
G28

Keywords
bank-supervision

Year
2006

Market data, such as bond spreads or equity price volatility, are a complementary source to bank supervisory information. In Switzerland, meaningful market data are available for a number of banks which constitute a major part of the banking system. Notwithstanding some limitations (biases due to state guarantee for cantonal banks and potential "too-big-to-fail" expectations for big banks) these market data are likely to play a supervisory role in the future. However, once the market expects supervisors to react to market data, these data become endogenous. This may jeopardize the very potential of market data to serve as policy guides.