Déjà Vu All Over Again: The Causes of U.S. Commercial Bank Failures This Time Around
Rebel A. Cole
Driehaus College of Business at DePaul University
Lawrence J. White
New York University (NYU) - Leonard N. Stern School of Business; Leonard N. Stern School of Business - Department of Economics
May 22, 2011
Journal of Financial Services Research 42, 5-29
In this study, we analyze why commercial banks failed during the recent financial crisis. We find that traditional proxies for the CAMELS components, as well as measures of commercial real estate investments, do an excellent job in explaining the failures of banks that were closed during 2009, just as they did in the previous banking crisis of 1985 – 1992. Surprisingly, we do not find that residential mortgage-backed securities played a significant role in determining which banks failed and which banks survived. Our results offer support for the CAMELS approach to judging the safety and soundness of commercial banks, but call into serious question the current system of regulatory risk weights and concentration limits on commercial real estate loans.
Number of Pages in PDF File: 44
Keywords: Bank, Bank Failure, Commercial Real Estate, CAMELS, FDIC, Financial Crisis, Mortgage-Backed Security, Risk-Based Capital, Risk-Weighted Assets
JEL Classification: G17, G21, G28Accepted Paper Series
Date posted: July 19, 2010 ; Last revised: January 14, 2013
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