The Effects of Bank Charter Switching on Supervisory Ratings

Abstract

I study whether commercial banks can improve their supervisory ratings by switching charters. I use the fees charged by chartering authorities to establish a causal effect from switching on ratings. Banks receive more favorable ratings after they change charters, an effect that is large for both national and state charters. In addition, controlling for bank ratings, banks that switch charters fail more often than others. These results suggest that banks can arbitrage ratings by switching charters and are consistent with regulators competing for banks by rating incoming banks better than similar banks that they already supervise.