PRUDENTIAL SUPERVISION AND DETECTION OF BANK FINANCIAL DISTRESS : IS MARKET INFORMATION USEFUL?

This paper studies the role that can be played by the stock market in the early detection of bank financial distress. We test the additional contribution of market indicators to accounting indicators in the European case and its accuracy for opaque institutions. We show that the significance of the marginal contribution of market indicators is dependent on the extent to which bank liabilities are market traded. For banks heavily relying on deposits, the market does not convey useful information even when more subordinated debt is issued.