Bank Failure: Evidence from the Colombian Financial Crisis

The International Journal of Business and Finance Research, Vol. 3, No. 2, pp. 15-31, 2009

17 Pages Posted: 5 Jul 2010

See all articles by Jose E Gomez-Gonzalez

Jose E Gomez-Gonzalez

Banco de la Republica

Nicholas M. Kiefer

Cornell University - Department of Economics

Date Written: 2009

Abstract

Bank-specific determinants of bank failure during the financial crisis in Colombia are identified and studied using duration analysis. The process of failure of banks and related financial institutions during that period can be explained by differences in financial health and prudence across institutions. The capitalization ratio is the most significant indicator explaining bank failure. Increases in this ratio lead to a reduction in the hazard rate of failure at any given moment in time. This ratio exhibits a non-linear component. At lower levels of capitalization small differences in capitalization are associated with larger differences in failure rates. Our results thus provide empirical support for existing regulatory practice.

Other important variables explaining bank failure dynamics are the bank's size and profitability.

Keywords: Financial institutions, bankruptcy, liquidation, capitalization, supervision, duration

JEL Classification: C41, E4, E58, G21, G23, G38

Suggested Citation

Gomez-Gonzalez, Jose Eduardo and Kiefer, Nicholas M., Bank Failure: Evidence from the Colombian Financial Crisis (2009). The International Journal of Business and Finance Research, Vol. 3, No. 2, pp. 15-31, 2009, Available at SSRN: https://ssrn.com/abstract=1634082

Jose Eduardo Gomez-Gonzalez (Contact Author)

Banco de la Republica ( email )

Carrera 7 #14-78
Bogota
Colombia

Nicholas M. Kiefer

Cornell University - Department of Economics ( email )

490 Uris Hall
Ithaca, NY 14853-7601
United States

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