Macroeconomic Shocks and Bank Failure

40 Pages Posted: 22 Aug 2014 Last revised: 6 Apr 2020

See all articles by Rebel A. Cole

Rebel A. Cole

Florida Atlantic University

Qiongbing Wu

Western Sydney University

Date Written: April 03, 2020


Utilizing a time-varying hazard model to analyze the bank-level data in the U.S over the period 1977 – 2013, we identify channels through which macroeconomic shocks affect bank failure. We find that bank-specific characteristics are more essential in predicting bank failure, and banking industry market performance and systematic funding risk are also significant predictors of bank failure. An economic recession would exacerbate bank asset quality and significantly increase failure likelihood of banks with higher ratio of non-performing loans, while a shock of interest rates makes those banks heavily relying on purchased funds much more susceptible to failure. These findings have important implications for policy makers and for those engaged in bank risk management and provide new empirical evidence in support of the robustness of CAMELS regulatory framework.

Keywords: bank failure, failure prediction, hazard model, macroeconomic shocks

JEL Classification: G17, G21, G28

Suggested Citation

Cole, Rebel A. and Wu, Qiongbing, Macroeconomic Shocks and Bank Failure (April 03, 2020). 27th Australasian Finance and Banking Conference 2014 Paper, Available at SSRN:

Rebel A. Cole

Florida Atlantic University ( email )

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


Qiongbing Wu (Contact Author)

Western Sydney University ( email )

169 Macquarie St.
Sydney, NSW 2150
+61-2-96859805 (Phone)
+61-2-96859105 (Fax)


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