The Economics of Bank Supervision

Tuesday, April 12, 2016

Professor Townsend, with co-authors Thomas Eisenbach and David Lucca, penned a commentary for the Federal Reserve's "Liberty Street Economics" on the vital differences between bank supervision and regulation. 

While bank regulation and supervision are the two main components of banking policy, the difference between them is often overlooked and the details of supervision can appear shrouded in secrecy. In this post, which is based on a recent staff report, we provide a framework for thinking about supervision and its relation to regulation. We then use data on supervisory efforts of Federal Reserve bank examiners to describe how supervisory efforts vary by bank size and risk, and to measure key trade-offs in allocating resources.