Uncertain Times and Early Predictions of Bank Failure

19 Pages Posted: 9 Oct 2020

See all articles by Cullen F. Goenner

Cullen F. Goenner

University of North Dakota - Department of Economics and Finance

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Date Written: November 2020

Abstract

The Great Financial Crisis shows that bank failure in the United States, while rare, is a concern during uncertain times. Interest here is in the ability to predict future failures at the start of a crisis, when the recent past has few events on which to base inferences. I show that policy makers using estimates based on the Savings and Loans crisis would identify in early 2009 that 2.0% of banks were in critical condition and 7.0% were unhealthy. This is comparable to the 1.7% of banks that failed within a year and the 3.9% of banks that would fail during the crisis.

Keywords: bank failure, banking crisis, Bayesian model averaging, prediction

JEL Classification: G17, G21, G28

Suggested Citation

Goenner, Cullen F., Uncertain Times and Early Predictions of Bank Failure (November 2020). Financial Review, Vol. 55, Issue 4, pp. 583-601, 2020, Available at SSRN: https://ssrn.com/abstract=3707490 or http://dx.doi.org/10.1111/fire.12213

Cullen F. Goenner (Contact Author)

University of North Dakota - Department of Economics and Finance ( email )

293 Centennial Drive Stop 8369
Grand Forks, ND 58202
United States

HOME PAGE: http://www.ndeconomist.com

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