Bank Examiners’ Information and Expertise and their Role in Monitoring and Disciplining Banks Before and During the Panic of 1893

We examine whether examiners were informed and contributed to the health of the banking sector. Examiners’ knowledge included quantitative information that eventually was made public, quantitative information that remained private, and subjective information dependent on the examiner's production of additional, “soft” information that informed examiner assessments of the quality of bank assets and management. All three types of information were useful for gauging the condition of the bank and affected bank behavior, including generating a publicly observable signal (skipping a dividend payment). Participants in the market for bank liabilities reacted to this signal in ways that promoted market discipline.