Are the Causes of Bank Distress Changing? Can Researchers Keep Up?
FRB of St. Louis Supervisory Policy Analysis Working Paper No. 2004-7; FDIC Center for Financial Research Working Paper No. 2005-03
49 Pages Posted: 13 Dec 2004
Date Written: January 2005
Since 1990, the banking sector has experienced enormous legislative, technological and financial changes, yet research into the causes of bank distress has slowed. One consequence is that current supervisory surveillance models may no longer accurately represent the banking environment. After reviewing the history of these models, we provide empirical evidence that the characteristics of failing banks has changed in the last ten years and argue that the time is right for new research employing new empirical techniques. In particular, dynamic models that utilize forward-looking variables and address various types of bank risk individually are promising lines of inquiry. Supervisory agencies have begun to move in these directions, and we describe several examples of this new generation of early-warning models that are not yet widely known among academic banking economists.
Keywords: Bank failure, bank distress, bank surveillance, early warning
JEL Classification: G1, G2
Suggested Citation: Suggested Citation