Bank Failures and the Source of Strength Doctrine
Economix Working Paper No. 2014-15
43 Pages Posted: 23 Mar 2014
Date Written: March 22, 2014
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: Suggested Citation