Predictors of Bank Distress: The 1907 Crisis in Sweden

Riksbank Research Paper Series No. 181

Sveriges Riksbank Working Paper Series 358

53 Pages Posted: 2 Nov 2018

See all articles by Anna Grodecka

Anna Grodecka

Sveriges Riksbank

Seán Kenny

Lund University

Anders Ögren

Lund University

Date Written: October 2018

Abstract

This paper contributes to literature on bank distress using the Swedish experience of the international crisis of 1907, often paralleled with 2008. By employing previously unanalyzed bank-level data, we use logit regressions and principal component analysis to measure the impact of pre-crisis bank characteristics on the probability of their subsequent distress. The crisis was characterized by “creative destruction,” as those banks with weaker corporate governance structures, wider branching networks, operating with lower cost efficiency were more likely to experience distress. We find that poor credit allocation rather than foreign borrowing, as often stressed, were associated with ultimate demise.

Keywords: Bank Distress, Financial Crises, Swedish Banks, Lender of Last Resort

JEL Classification: E58, G21, G28, H12, N23

Suggested Citation

Grodecka, Anna and Kenny, Seán and Ögren, Anders, Predictors of Bank Distress: The 1907 Crisis in Sweden (October 2018). Sveriges Riksbank Working Paper Series 358. Available at SSRN: https://ssrn.com/abstract=3272745 or http://dx.doi.org/10.2139/ssrn.3272745

Anna Grodecka (Contact Author)

Sveriges Riksbank ( email )

Brunkebergstorg 11
SE-103 37 Stockholm
Sweden

Seán Kenny

Lund University

Box 117
Lund, S221 00
Sweden

Anders Ögren

Lund University ( email )

Box 117
Lund, S221 00
Sweden

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