Forecasting Bank Leverage

CAMA Working Paper No. 56/2012

36 Pages Posted: 18 Jul 2013

See all articles by Gerhard Hambusch

Gerhard Hambusch

University of Technology Sydney

Sherrill Shaffer

University of Wyoming

Date Written: December 1, 2012

Abstract

Standard early warning models to predict bank failures cannot be estimated during periods of few or zero failures, precluding any updating of such models during times of good performance. Here we address this problem using an alternative approach, forecasting the simple leverage ratio (equity/assets) as a continuous variable that does not suffer from the small sample problem. Out-of-sample performance shows some promise as a supplement to the standard approach, despite measurable deterioration in prediction accuracy during the crisis years.

Keywords: Bank leverage, forecasts, early warning

JEL Classification: G21

Suggested Citation

Hambusch, Gerhard and Shaffer, Sherrill, Forecasting Bank Leverage (December 1, 2012). CAMA Working Paper No. 56/2012. Available at SSRN: https://ssrn.com/abstract=2295195 or http://dx.doi.org/10.2139/ssrn.2295195

Gerhard Hambusch

University of Technology Sydney ( email )

14-28 Ultimo Road
Ultimo, NSW 2007
Australia
+61295147749 (Phone)

Sherrill Shaffer (Contact Author)

University of Wyoming ( email )

P.O. Box 3985
Laramie, WY 82071-3985
United States
307-766-2173 (Phone)
307-766-5090 (Fax)

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