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Bank Failures in Banking Panics: Risky Banks or Road Kill?

FRB Atlanta Working Paper No. 2001-13

35 Pages Posted: 24 Aug 2001  

Gerald P. Dwyer

Clemson University; Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA)

Rik W. Hafer

Plaster School of Business

Date Written: July 2001

Abstract

Are banks that fail in banking panics the riskiest ones prior to the panics? The free banking era in the United States provides useful data to examine this question because the assets held by the banks were traded at the New York Stock Exchange. The authors estimate the ex ante riskiness of a bank's portfolio by examining the portfolio relative to mean-variance frontiers and by examining the bank's leverage and notes relative to assets. The authors find that the ex ante riskiness of a bank's portfolio helps predict which banks fail and the extent of noteholders' losses in the event of failure.

Keywords: Banking panics, bank failure, banking regulation, portfolio risk

JEL Classification: G21, G28, E58, N21

Suggested Citation

Dwyer, Gerald P. and Hafer, Rik W., Bank Failures in Banking Panics: Risky Banks or Road Kill? (July 2001). FRB Atlanta Working Paper No. 2001-13. Available at SSRN: https://ssrn.com/abstract=281006 or http://dx.doi.org/10.2139/ssrn.281006

Gerald P. Dwyer (Contact Author)

Clemson University ( email )

Department of Economics
Clemson University
Clemson, SC 29634
United States

Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA) ( email )

ANU College of Business and Economics
Canberra, Australian Capital Territory 0200
Australia

Rik W. Hafer

Plaster School of Business ( email )

St. Charles, MO
United States

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