Bank Failures and the Source of Strength Doctrine

Economix Working Paper No. 2014-15

43 Pages Posted: 23 Mar 2014

See all articles by Vincent Bouvatier

Vincent Bouvatier

University Paris-Est Créteil (UPEC) - ERUDITE

Michael Brei

Université Paris Ouest - Nanterre, La Défense - EconomiX

Xi Yang

Université Paris Ouest - Nanterre, La Défense - EconomiX

Date Written: March 22, 2014

Abstract

This paper examines the determinants of bank failures in the US banking system during the recent financial crisis. The analysis employs a data set on the financial statements of FDIC-insured commercial banks and their bank holding companies, along with information on bank failures, mergers and acquisitions. The econometric evidence suggests that failed banks have been characterized by significantly higher loan growth rates, well ahead of the financial crisis, coupled with higher exposures to the mortgage market segment and to funding in the form of brokered deposits. We also find evidence that commercial banks have been less likely to fail, when they belonged to well-capitalized and profitable bank holding companies with lower exposures to short-term funding. Our results provide empirical support for the recent modifications in bank regulation and supervision which introduce counter-cyclical components for capital buffers and a more comprehensive supervision of consolidated banking groups.

Keywords: financial crises, bank failures, bank regulation

JEL Classification: G21, E58, G32

Suggested Citation

Bouvatier, Vincent and Brei, Michael and Yang, Xi, Bank Failures and the Source of Strength Doctrine (March 22, 2014). Economix Working Paper No. 2014-15. Available at SSRN: https://ssrn.com/abstract=2412936 or http://dx.doi.org/10.2139/ssrn.2412936

Vincent Bouvatier

University Paris-Est Créteil (UPEC) - ERUDITE ( email )

Mail des Mèches
61 avenue du Général de Gaulle
Créteil Cedex, 94010
France

Michael Brei (Contact Author)

Université Paris Ouest - Nanterre, La Défense - EconomiX ( email )

200 Avenue de la République
Nanterre cedex, Nanterre Cedex 92000
France

Xi Yang

Université Paris Ouest - Nanterre, La Défense - EconomiX ( email )

200 Avenue de la République
Nanterre cedex, Nanterre Cedex 92000
France

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