The Bank Failure Rate, Economic Conditions and Banking Statutes in the U.S., 1970–2009

Cebula, Richard J.; Koch, James V.; Fenili, R.N.

doi:10.1007/s11293-010-9258-7

Cited by 9 publications

(12 citation statements)

References 9 publications

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“…ROA is also a very popular measure to assess bank performance [28][29][30][31][32][33][34][35]. Other variables are bank failure rates [36,37], net interest margin [38], growth in loans [39], and probability of distress events [4].…”

Section: Literature Reviewmentioning

confidence: 99%

The Effect of Housing Prices on Bank Performance in Korea

Kim

Park

2019

Sustainability

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This study analyzes the relationship between housing prices and bank performance in Korea. To this end, using lending growth, return on assets, and non-performing loans as a performance measure, we estimate fixed-effects models for each measure. Major empirical results are summarized as follows. First, fluctuations in housing prices affect the banks’ lending decisions. If housing prices rise, banks tend to increase the volume of loans. Second, fluctuations in housing prices affect the quality of assets owned by banks. Banks’ asset soundness will improve in the case of a rise in housing prices. Third, fluctuations in housing prices have a greater impact on bank profitability when the real estate market goes bust. Our study suggests that in Korea, one of the emerging markets, there is a positive relationship between changes in housing prices and banks’ performance. In particular, banks’ profitability and soundness could be significantly hampered by a drop in housing prices. Therefore, it is necessary to be wary of excessively expanding real estate loans during the period of real estate booms.

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Section: Literature Reviewmentioning

confidence: 99%

The Effect of Housing Prices on Bank Performance in Korea

Kim

Park

2019

Sustainability

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“…These studies concluded that bank provisions increase with non-performing loans and strike at the bank capital, and as the sources of systemic risk. Some other studies applied bank's specific factors (CAMEL) as a measure of bank stability, the reviews are included Bongini et al (2001), Calomiris & Mason (2003b), and Cebula et al (2011). However, the drawback of using this measure is the CAMEL rating is not forward-looking and may not be good enough to track the emerging risk.…”

Section: Empirical Literaturementioning

confidence: 99%

House Price Changes and Islamic Bank Stability: Evidence From Malaysia

Kok¹,

Ismail²

2019

JIMF

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In this paper, we examine the relationship between house price and Islamicbank stability in Malaysia. In particular, in relating to Islamic bank stability toMalaysian house price changes, we evaluate the nature of the relationship from theperspective of nonlinearities. The Autoregressive Distributed Lag (ARDL) modelis applied to a sample that consists of 9 Islamic banks in Malaysia for the periodof 2000-2016. Our results indicate that there is an inverted U-shaped relationshipbetween house price and Islamic bank stability in the long run. Meanwhile, therelationship is insignificant in the short-run. To put it differently, initially, thehigher house prices, the more stable the bank. Then, the impact of house prices onbank stability becomes negative when house prices surpass the threshold point.As far as the bank-specific characteristics are concerned, the cost to income ratiois found to significantly and negatively related to the bank stability. Such a resulthas policy implications in which it is crucial for achieving balance in the housingmarket, and efficiently managing the cost is equally important to ensure Islamicbank soundness.

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“…Given this context, the present study seeks to provide contemporary insights into factors that have systematically influenced bank failures in the USA over time. Although bank failure rates have been recently investigated, for example, by Cebula et al (2011), the present undertaking investigates this issue by estimating models that contain more financial/economic variables and more government banking statutes[1] than previously investigated and by adopting more robust econometric techniques[2] than most previous studies. In addition, this study examines more current data, allowing it to take the entire Great Recession and five years of additional data for the post-Great Recession experience into consideration.…”

Section: Introductionmentioning

confidence: 99%

New evidence on the impact of economic conditions and banking legislation on the bank failure rate in the US, 1970 to 2014

Cebula

Gillis

McCrary

et al. 2016

JFEP

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Purpose This study aims to identify factors influencing the bank failure rate in the USA over the period from 1970 to 2014 with an emphasis on economic/financial factors on the one hand and on banking legislation on the other hand. Regarding the latter, this study empirically investigates four major banking statutes: the Community Reinvestment Act of 1977; the Depository Institutions Deregulation and Monetary Control Act of 1980; the Federal Deposit Insurance Corporation Improvement Act of 1991; and the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. After adopting the technique of generalized method of moments (GMM), a robustness check in the form of autoregressive conditional heteroskedasticity (ARCH) is undertaken. Overall, the estimations imply that the bank failure rate was a decreasing function of the percentage growth rate of real gross domestic product (GDP) and the real interest rate yields on both three-month US Treasury bills and 30-year fixed-rate mortgages and an increasing function of the real cost of funds. In addition, there is strong evidence that the bank failure rate was increased by provisions in the Community Reinvestment Act of 1977 and the Depository Institutions Deregulation and Monetary Control Act of 1980, whereas the bank failure rate was decreased as a result of provisions in the Federal Deposit Insurance Corporation Improvement Act of 1991 and the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. Finally, there also is evidence that higher federal budget deficits elevated the bank failure rate. Design/methodology/approach After modeling the bank failure rate as a function of financial/economic variables and banking legislation, the times series from 1970 to 2014 is estimated by GMM and then by the ARCH techniques. Findings The results of the GMM and ARCH estimations imply that the bank failure rate in the US was a decreasing function of the percentage growth rate of real GDP as well as the real interest rate yields on both three-month US Treasury bills and 30-year fixed-rate mortgages and an increasing function of the real cost of funds. Furthermore, there is strong empirical support indicating that the bank failure rate was elevated by various provisions in the Community Reinvestment Act of 1977 and in the Depository Institutions Deregulation and Monetary Control Act of 1980, while the bank failure rate was reduced by certain provisions in the Federal Deposit Insurance Corporation Improvement Act of 1991 and the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. There also is evidence that higher federal budget deficits increased the bank failure rate. Originality/value This study is the most contemporary (1970-2014) analysis of potential causes of the bank failure rate in the USA. The study also may be the first to apply the GMM and GARCH models to the problem. Also, some interesting policy implications are provided in the Conclusion.

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The Bank Failure Rate, Economic Conditions and Banking Statutes in the U.S., 1970–2009

Abstract: Bank failures, Economic factors, Financial factors, Banking legislation, G18, G20, G21,

Cited by 9 publications

References 9 publications

The Effect of Housing Prices on Bank Performance in Korea

The Effect of Housing Prices on Bank Performance in Korea

House Price Changes and Islamic Bank Stability: Evidence From Malaysia

New evidence on the impact of economic conditions and banking legislation on the bank failure rate in the US, 1970 to 2014

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