Bank Failures: Review and Comparison of Prediction Models

Abstract

The interest in banks’ bankruptcy prediction has rapidly increased especially after the 2008-2009 global financial crisis. The relevant consequences of bankruptcy cases have indeed highlighted the necessity for managers and regulators to develop and adopt appropriate early warning systems. The purpose of this paper is therefore to conduct a literature review of recent empirical contributions on bank’s default prediction by analyzing three underlying aspects: definition of default and financial distress, application of statistical and intelligent techniques, variables selection. The review also proposes some possible upgrades to promote future research on the topic, i.e. pointing out the potential role of non-financial information as good default predictors.

Keywords: Bank Failures, Financial Distress, Bankruptcy Prediction, Prediction Models, Financial Indicators, Non-Financial Indicators

JEL Classification: G33, G21, G01, C53