The Determinants of Credit Union Failure in the United Kingdom: How Important Are Macroeconomic Factors?

36 Pages Posted: 15 Feb 2020

See all articles by Jamie Coen

Jamie Coen

Bank of England

William Francis

Bank of England

May Rostom

Bank of England

Date Written: February 1, 2018

Abstract

Using regulatory data on credit unions, this paper provides empirical evidence on the determinants of credit union failure in the United Kingdom. We find that a small set of financial attributes related to capital adequacy, asset quality, earnings performance and liquidity is useful for early identification of troubled credit unions. In and out-of-sample results indicate that this parsimonious set of firm-level characteristics, augmented with national and regional unemployment rates, reliably identifies failures while keeping false alarm rates at modest levels. The results provide support for establishing early warning criteria for supervisory use in monitoring credit unions.

Keywords: Credit unions, failure, early-warning, logit, policymaker loss function

JEL Classification: G21, G28, G38

Suggested Citation

Coen, Jamie and Francis, William and Rostom, May, The Determinants of Credit Union Failure in the United Kingdom: How Important Are Macroeconomic Factors? (February 1, 2018). Bank of England Working Paper No. 658, Available at SSRN: https://ssrn.com/abstract=3521239 or http://dx.doi.org/10.2139/ssrn.3521239

Jamie Coen

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

William Francis (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

May Rostom

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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