Abstract
This article investigates the relationship between CD rates as a measure of bank risk and the confidential CAMEL scores assigned to a bank as a result of an onsite examination. CAMEL ratings determine whether a bank is placed on the “problem list” and expresses the examiner's belief that the bank should be subjected to enhanced surveillance. In the view of regulators, CAMEL ratings are based on inside information and hence should be confidential. The empirical results in this article suggest that CAMEL ratings are primarily proxies for available market information about the quality of a bank.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Comptroller of the Currency.Quarterly Journal 7 (March 1988a).
Comptroller of the Currency.Bank Failure: An Evaluation of the Factors Contributing to the Failure of National Banks. Washington, D.C., June 1988b.
Federal Deposit Insurance Corporation.1987 Annual Report. Washington, D.C.: Federal Deposit Insurance Corporation, 1987.
Flannery, Mark and James, Christopher. “The Effect of Interest Rate Changes on Common Stock Returns of Financial Institutions.”Journal of Finance 39 (September 1984), 1141–1153.
Hanna, Timothy H. and Hanweck, Gerald A. “Bank Insolvency Risk and the Market for Large Certificates of Deposit.”Journal of Money, Credit and Banking 20 (May 1988), 203–211.
Hausman, J.A. and Taylor, W.E. “Panel Data and Unobservable Individual Effects.”Econometrica 49 (1981), 1377–1398.
Hirschhorn, Eric. “The Informational Content of Bank Examination Ratings.”Banking and Economic Review, Federal Deposit Insurance Corporation, 5 (July/August 1987), 6–11.
James, Christopher. “Off-Balance Sheet Banking.”Economic Review, Federal Reserve Bank of San Francisco (Fall 1987), 21–36.
James, Christopher. “The Use of Loan Sales and Standby Letters of Credit by Commercial Banks.”Journal of Monetary Economics 22 (1988), 395–422.
Johnson, James M. and Weber, Paul G. “The Impact of the Problem Bank Disclosure on Bank Share Prices.”Journal of Bank Research 8 (Autumn 1977), 179–182.
Author information
Authors and Affiliations
Additional information
The first draft of this article was prepared while the author was a Visiting Scholar at the Federal Deposit Insurance Corporation in the summer of 1988. This article reflects the opinions and analysis of the author and not the Federal Deposit Insurance Corporation
Rights and permissions
About this article
Cite this article
Cargill, T.F. CAMEL ratings and the CD market. J Finan Serv Res 3, 347–358 (1989). https://doi.org/10.1007/BF00114050
Issue Date:
DOI: https://doi.org/10.1007/BF00114050