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Déjà Vu All Over Again: The Causes of U.S. Commercial Bank Failures This Time Around

44 Pages Posted: 19 Jul 2010 Last revised: 14 Jan 2013

Rebel A. Cole

College of Business--Florida Atlantic University

Lawrence J. White

New York University (NYU) - Leonard N. Stern School of Business, Department of Economics

Date Written: May 22, 2011

Abstract

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.

Keywords: Bank, Bank Failure, Commercial Real Estate, CAMELS, FDIC, Financial Crisis, Mortgage-Backed Security, Risk-Based Capital, Risk-Weighted Assets

JEL Classification: G17, G21, G28

Suggested Citation

Cole, Rebel A. and White, Lawrence J., Déjà Vu All Over Again: The Causes of U.S. Commercial Bank Failures This Time Around (May 22, 2011). Journal of Financial Services Research 42, 5-29. Available at SSRN: https://ssrn.com/abstract=1644983

Rebel Cole (Contact Author)

College of Business--Florida Atlantic University ( email )

College of Business
777 Glades Road
Boca Raton, FL 33431
United States
1-561-297-4969 (Phone)

Lawrence White

New York University (NYU) - Leonard N. Stern School of Business, Department of Economics ( email )

44 West 4th Street
New York, NY NY 10012
United States

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