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Bank Failures and the Source of Strength Doctrine

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  • Vincent Bouvatier
  • Michael Brei
  • Xi Yang

Abstract

This paper examines the determinants of bank failures in the US banking system during the recent financial crisis. The analysis employs a dataset on the financial statements of FDIC-insured commercial banks and their bank holding companies, along with information on bank failures, mergers, and acquisitions. The econometric evidence suggests that failed banks have been characterized by significantly higher loan growth rates, well ahead of the financial crisis, coupled with higher exposures to the mortgage market segment and to funding in the form of brokered deposits. We also find evidence that commercial banks have been less likely to fail, when they belonged to well-capitalized and profitable bank holding companies with lower exposures to short-term funding. Our results provide empirical support for the recent modifications in bank regulation and supervision which introduce countercyclical components for capital buffers and a more comprehensive supervision of consolidated banking groups.

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Bibliographic Info

Paper provided by University of Paris West - Nanterre la Défense, EconomiX in its series EconomiX Working Papers with number 2014-15.

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Length: 28 pages
Date of creation: 2014
Date of revision:
Handle: RePEc:drm:wpaper:2014-15

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Keywords: financial crises; bank failures; bank regulation.;

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References

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Cited by:
  1. Mehmet Balcilar & Kirsten Thompson & Rangan Gupta & Renee van Eyden, 2014. "Testing the Asymmetric Effects of Financial Conditions in South Africa: A Nonlinear Vector Autoregression Approach," Working Papers, University of Pretoria, Department of Economics 201414, University of Pretoria, Department of Economics.
  2. Naceur Naguez & Jean-Luc Prigent, 2014. "Kappa Performance Measures with Johnson Distributions," Working Papers, Department of Research, Ipag Business School 2014-510, Department of Research, Ipag Business School.
  3. Olfa Bouasker & Jean-Luc Prigent, 2014. "Corporate Investment Choice and Exchange Option between Production Functions," Working Papers, Department of Research, Ipag Business School 2014-511, Department of Research, Ipag Business School.

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