Bank structure and failure during the financial crisis

Abstract

Purpose -This paper aims to examine the impact of charter type (national vs state), holding company structure, and measures of bank fragility on the likelihood of bank failure during the late 2000s financial crisis. Design/methodology/approach -The study estimates a series of logit regressions in an effort to identify the causes of failure and assess the role of the bank-level characteristics while controlling for the economic and regulatory environment. Findings -The empirical results indicate that established institutions were more likely to fail, dependent upon whether a bank received bailout funds or not, if they were relatively large, had relatively low capital ratios, had relatively low liquidity, relied more heavily on brokered deposits, held a relatively large portfolio of real estate loans, had a relatively large proportion of non performing loans, and had less income diversity. Consistent with being financially fragile, de novo banks and those banks that grew substantially prior to the crisis faced an increased likelihood of failure relative to established banks. However, capital levels were not significantly related to the likelihood of failure in de novo institutions. Originality/value -This paper provides a comprehensive analysis of the possible business models' impact on the likelihood of failure during the recent financial crisis. It contributes to the ongoing debate regarding appropriate regulatory reform in the banking industry by shedding light on the extent to which the business model decisions made by bank managers have an impact on the stability of the banking system.

Decline in State Chartered Banks: Causes, Concerns, and Conclusions

“…DeYoung et al (2009) did a comprehensive study of M&A of over 150 cases and concluded the primary causation of consolidation stemmed from innovation in financial and technical fields that created new optimal functions of operations. Lu and Whidbee (2013) show that banks that are more financially fragile are more likely to fail, as well as de novo banks. Since the 2007 financial crisis, many different factors have been deemed significant in influencing bank failures such as brokered deposits (Rossi 2010), real-estate loans (Cole and White 2011), and audit quality (Jin, Kanagaretnam, and Lobo 2011).…”

To what extent the global financial crisis deteriorated loan quality of US commercial banks

“…Referring to Stiroh and Metli (2003), Lu and Whidbee (2013) and Ghosh (2015), we use the usual measure of non-performing loans as the sum of non-accrual loans and loans past due 90 days or more. Stiroh and Metli (2003) define non-accrual loans as loans not earning the predetermined interest rate either because the whole collection of principal is uncertain or since the payment of interests has not been completed.…”

Determinantes macro y microeconómicos para pruebas de tensión de riesgo de crédito: un estudio comparativo entre Ecuador y Colombia basado en la tasa de morosidad

“…Esto mejoraría los márgenes de crédito a largo plazo ya que el crecimiento de los préstamos normalmente se recupera gracias a una economía mejorada. Existe evidencia de que una alta reserva de NPL es un predictor significativo de quiebra bancaria, y distorsiona la estructura de costos y la eficiencia del banco (Lu y Whidbee, 2013, Cucinelli, 2015. Un ejemplo de tales distorsiones es el caso de los «préstamos zombis» de los bancos japoneses para salvar a las empresas plagadas de deudas incobrables, lo que condujo a la mala asignación de capital y la desaceleración del crecimiento económico durante la década de 1990 (Caballero, Hoshi y Kashyap, 2008).…”