Bank Liability Structure, FDIC Loss, and Time to Failure: A Quantile Regression Approach

Schaeck, Klaus

doi:10.1007/s10693-008-0028-5

“…; Lane, Looney, and Wansley, 1986;Whalen and Thomson, 1988;Espahbodi, 1991;Logan, 1991;Thomson, 1991;Cole andGunther, 1995, 1998;Kolari et al, 2002;Schaeck, 2008;Cole and White, 2012) who…”

Section: A Methodologymentioning

confidence: 99%

The Roles of Corporate Governance in Bank Failures during the Recent Financial Crisis

Berger

¹

,

Imbierowicz

²

,

Rauch

³

2012

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This paper analyzes the roles of corporate governance in bank defaults during the recent financial crisis. We investigate the impact of bank ownership and management structures on the probability of default of US commercial banks. Our results show that defaults are strongly influenced by a bank's ownership structure: high shareholdings of lower-level management, such as vice presidents, increase default risk significantly. In contrast, shareholdings of outside directors and chief officers (managers with a "chief officer" position, such as the CEO, CFO, etc.) do not have a direct impact on the probability of failure. These findings suggest that high stakes in the bank induce lower-level management, which has direct influences on the bank's daily operations, to take high risks, which may eventually result in bank default. Our results further show that the probability of default specifically increases when incentives of chief officers and lower-level management are aligned. Some accounting variables, such as capital, earnings, and non-performing loans, also help predict bank default. However, other potential stability indicators, such as the management structure of the bank, indicators of market competition, subprime mortgage risks, state economic conditions, and regulatory influences, appear to be less decisive factors in predicting bank default. JEL Codes: G21, G28, G32, G34

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“…These studies were characterized as 'early-warning' models for preemptively detecting potential financial distress, thus allowing bank supervisors to attempt corrective actions. This set of studies includes, among many others, Thomson (1991), Whalen (1991), Cole and Gunther (1995), Wheelock and Wilson (2000), DeYoung (2003b), Oshinsky and Olin (2006) and Schaeck (2008). This body of research collectively identified a standard set of variables useful for predicting bank financial distress and failure, including rapid loan growth, overreliance on loans backed by commercial real estate, and heavy use of wholesale funding and interbank funding sources.…”

Section: Exit By Financial Failurementioning

confidence: 99%

Is the Traditional Banking Model a Survivor?

Chiorazzo¹,

D’Apice²,

DeYoung

³

et al. 2016

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We test whether small US commercial banks that use a traditional business model are more likely to survive than non-traditional banks during both good and bad economic climates. Our concept of bank survival is derived from Stigler (1958) and includes any bank that does not fail or is not acquired. We define traditional banking by four hallmark characteristics: Relationship loans, core deposit funding, revenue streams from traditional banking services, and physical bank branches. Banks that adhered more closely to this business strategy were an estimated 8 to 13 percentage points more likely to survive from 1997 through 2012 compared to other small banks using less traditional business strategies. This survival advantage approximately doubled during the financial crisis period.

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“…Most studies of bank failure have focused on the influence of accounting variables, such as capital ratios, nonperforming loan (NPL) ratios, and earnings (e.g., Martin , Pettway and Sinkey , Lane, Looney, and Wansley , Espahbodi , Cole and Gunther , , Helwege , Schaeck , Cole and White ). However, almost no research to date has empirically analyzed the influence of corporate governance characteristics, such as ownership structure or management structure, on a bank's probability of failure .…”

mentioning

confidence: 99%

The Roles of Corporate Governance in Bank Failures during the Recent Financial Crisis

Berger¹,

Imbierowicz²,

Rauch³

2016

J of Money Credit Banking

View full text Add to dashboard Cite

This paper analyzes the roles of corporate governance in bank defaults during the recent financial crisis. We investigate the impact of bank ownership and management structures on the probability of default of US commercial banks. Our results show that defaults are strongly influenced by a bank's ownership structure: high shareholdings of lower-level management, such as vice presidents, increase default risk significantly. In contrast, shareholdings of outside directors and chief officers (managers with a "chief officer" position, such as the CEO, CFO, etc.) do not have a direct impact on the probability of failure. These findings suggest that high stakes in the bank induce lower-level management, which has direct influences on the bank's daily operations, to take high risks, which may eventually result in bank default. Our results further show that the probability of default specifically increases when incentives of chief officers and lower-level management are aligned. Some accounting variables, such as capital, earnings, and non-performing loans, also help predict bank default. However, other potential stability indicators, such as the management structure of the bank, indicators of market competition, subprime mortgage risks, state economic conditions, and regulatory influences, appear to be less decisive factors in predicting bank default. JEL Codes: G21, G28, G32, G34

show abstract

Bank Liability Structure, FDIC Loss, and Time to Failure: A Quantile Regression Approach

Abstract: Bank liability structure, loss given default, market discipline, time to failure, quantile regression,

Cited by 73 publications

References 19 publications

The Roles of Corporate Governance in Bank Failures during the Recent Financial Crisis

The Roles of Corporate Governance in Bank Failures during the Recent Financial Crisis

Is the Traditional Banking Model a Survivor?

The Roles of Corporate Governance in Bank Failures during the Recent Financial Crisis

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