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U.S. bank regulators require financial institutions to file quarterly financial reports, which are then available for public use. This research considers whether data constructed from regulatory filings explain bank financial strength ratings. We examine a dataset with variables on over 6,000 banks. The variables include the topics of bank capital, asset quality, management capacity, earnings, liquidity, and sensitivity to market risk. We found that one variable each from the above selected topic areas explain nearly 60% of bank financial strength ratings. Prior research attempted to explain and predict bank financial strength ratings (Hammer, Kogan, & Lejeune, 2012; Poon, Firth, & Fung, 1999). Since the 2007–2010 financial crisis, prior research has also attempted to predict the financial strength ratings of Turkish banks (Öğüt, Doğanay, Ceylan, & Aktas, 2012), the performance of South African banks (Kumbirai & Webb, 2010) and bank performance in Malaysia and China (Said & Tumin, 2011). We utilize variables from a bank regulatory model to determine how well they explain financial strength ratings. Our research adds to the literature by considering nearly the entire population of U.S. banks across time periods not previously considered.

In this study, data from two credit rating agencies are analyzed to consider how different Bank Financial Strength Ratings and Credit Ratings from two rating agencies compare. To my knowledge, prior research has not analyzed Bank Financial Strength Ratings from different rating agencies, nor has it compared Bank Financial Strength Ratings to general credit ratings. These facts make this research unique. Univariate analyses are utilized to show relationships in the ratings data, along with parametric and non-parametric tests to make statistical inferences about the ratings data. There are five findings. First, ratings from different rating agencies are highly correlated. Second, different types of ratings from the same rating agency are highly correlated. Third, bank financial strength ratings are more conservative than credit ratings. Fourth, bank financial strength ratings declined in rating more quickly at the start of the financial crisis. Fifth, bank financial strength ratings from the Kroll Bond Rating Agency were more conservative than ratings from Moody’s Investors Service. The research findings and results are important for investors who consider ratings agency data to determine the risk of banking institutions. The results are also important to businesses that rely on bank credit rating data and policy makers who regulate banking institutions.

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Over the past decade, the banking industry has incurred over $300 billion in litigation and related legal costs. We analyzed the litigation expense data and corporate governance data of seven US and six European banking institutions. The 13 banking intuitions incurred nearly $200 billion in litigation expenses, roughly two-thirds of the total litigation expense incurred by the entire banking industry. We compared corporate governance metrics to the litigation expenses for the same 13 banking institutions. There are four main findings: First, litigation expenses of large banks have been on the decline since 2015; second, although the US banks incurred much greater litigation expenses during the 2010–2014 period, their litigation expenses have declined much more quickly than those of the European banks during the 2015–2017 period; third, litigation expenses incurred by European banks have been much higher than those of US banks when compared with bank total revenues and total capital; fourth, for US banks there is a strong correlation between improved corporate governance and lower litigation costs. However, for European banks it appears that the comply-or-explain approach to corporate governance muddies the link between good corporate governance and lower litigation costs.