Journal article
Bank structure and failure during the financial crisis
Journal of financial economic policy, Vol.5(3), pp.281-299
07/26/2013
Handle:
https://hdl.handle.net/2376/115484
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.
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Details
- Title
- Bank structure and failure during the financial crisis
- Creators
- Wenling Lu - Department of Finance and Management Science, Washington State University, Pullman, Washington, USADavid A Whidbee - Department of Finance and Management Science, Washington State University, Pullman, Washington, USA
- Publication Details
- Journal of financial economic policy, Vol.5(3), pp.281-299
- Academic Unit
- Finance and Management Science, Department of
- Publisher
- Emerald Group Publishing Limited
- Identifiers
- 99900548079601842
- Language
- English
- Resource Type
- Journal article