Authors: Sergio Correia, Stephan Luck, and Emil Verner
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Staff Reports
Supervising Failing Banks
Number 1168
October 2025
October 2025
JEL classification: G01, G21, N20, N24
This paper studies the role of banking supervision in anticipating, monitoring, and disciplining failing banks. We document that supervisors anticipate most bank failures with a high degree of accuracy. Supervisors play an important role in requiring troubled banks to recognize losses, taking enforcement actions, and ultimately closing failing banks. To establish causality, we exploit exogenous variation in supervisory strictness during the Global Financial Crisis. Stricter supervision leads to more loss recognition, reduced dividend payouts, and an increase in the likelihood and speed of closure. Increased strictness entails a trade-off between a lower resolution cost to the FDIC and reduced credit.
Author Disclosure Statement(s)
Sergio Correia
I declare that I have no relevant or material financial interests that relate to the research described in the paper “Supervising Failing Banks”. I have received no outside financial support, and no third party has a “right to review” of the paper.
Stephan Luck
I declare that I have no relevant or material financial interests that relate to the research described in this paper (Failing Banks). Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html
Emil Verner
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staD_reports/index.html.
I declare that I have no relevant or material financial interests that relate to the research described in the paper “Supervising Failing Banks”. I have received no outside financial support, and no third party has a “right to review” of the paper.
Stephan Luck
I declare that I have no relevant or material financial interests that relate to the research described in this paper (Failing Banks). Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html
Emil Verner
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staD_reports/index.html.
Suggested Citation:
Correia, Sergio, Stephan Luck, and Emil Verner. 2025. “Supervising Failing Banks.” Federal Reserve Bank of New York Staff Reports, no. 1168, October. https://doi.org/10.59576/sr.1168
Correia, Sergio, Stephan Luck, and Emil Verner. 2025. “Supervising Failing Banks.” Federal Reserve Bank of New York Staff Reports, no. 1168, October. https://doi.org/10.59576/sr.1168
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