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Financial crises and bank failures: a review of prediction methods

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  • Yuliya Demyanyk
  • Iftekhar Hasan

Abstract

In this article we analyze financial and economic circumstances associated with the U.S. subprime mortgage crisis and the global financial turmoil that has led to severe crises in many countries. We suggest that the level of cross-border holdings of long-term securities between the United States and the rest of the world may indicate a direct link between the turmoil in the securitized market originated in the United States and that in other countries. We provide a summary of empirical results obtained in several Economics and Operations Research papers that attempt to explain, predict, or suggest remedies for financial crises or banking defaults; we also extensively outline the methodologies used in them. The intent of this article is to promote future empirical research for preventing financial crises.

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Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 0904.

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Date of creation: 2009
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Handle: RePEc:fip:fedcwp:0904

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Keywords: Subprime mortgage ; Financial crises;

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Citations

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Cited by:
  1. Sarlin, Peter & Peltonen, Tuomas A., 2013. "Mapping the state of financial stability," Journal of International Financial Markets, Institutions and Money, Elsevier, Elsevier, vol. 26(C), pages 46-76.
  2. Vincent Bouvatier & Michael Brei & Xi Yang, 2014. "Bank Failures and the Source of Strength Doctrine," EconomiX Working Papers 2014-15, University of Paris West - Nanterre la Défense, EconomiX.
  3. Caserio Carlo & Panaro Delio & Trucco Sara, 2014. "A statistical analysis of reliability of audit opinions as bankruptcy predictors," Discussion Papers 2014/174, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
  4. John A. Tatom & Reza Houston, 2011. "Predicting Failure in the Commercial Banking Industry," NFI Working Papers 2011-WP-27, Indiana State University, Scott College of Business, Networks Financial Institute.
  5. San-Martín-Albizuri, Nerea & Rodríguez-Castellanos, Arturo, 2012. "Globalisation And The Unpredictability Of Crisis Episodes: An Empirical Analysis Of Country Risk Indexes / La Imprevisibilidad De Los Episodios De Crisis: Un Análisis Sobre Los Índices De Riesgo Pa�," Investigaciones Europeas de Dirección y Economía de la Empresa (IEDEE), Academia Europea de Dirección y Economía de la Empresa (AEDEM), Academia Europea de Dirección y Economía de la Empresa (AEDEM), vol. 18(2), pages 148-155.
  6. Lang, William W. & Jagtiani, Julapa, 2010. "The Mortgage Financial Crises: The Role of Credit Risk Management and Corporate Governance," Working Papers, University of Pennsylvania, Wharton School, Weiss Center 10-12, University of Pennsylvania, Wharton School, Weiss Center.
  7. Pierluigi Bologna, 2011. "Is there a role for funding in explaining recent US bank failures?," Questioni di Economia e Finanza (Occasional Papers) 103, Bank of Italy, Economic Research and International Relations Area.
  8. Rebel Cole & Lawrence White, 2012. "Déjà Vu All Over Again: The Causes of U.S. Commercial Bank Failures This Time Around," Journal of Financial Services Research, Springer, Springer, vol. 42(1), pages 5-29, October.
  9. William Lang & Julapa Jagtiani, 2010. "The Mortgage and Financial Crises: The Role of Credit Risk Management and Corporate Governance," Atlantic Economic Journal, International Atlantic Economic Society, International Atlantic Economic Society, vol. 38(2), pages 123-144, June.
  10. Jin, Justin Yiqiang & Kanagaretnam, Kiridaran & Lobo, Gerald J., 2011. "Ability of accounting and audit quality variables to predict bank failure during the financial crisis," Journal of Banking & Finance, Elsevier, Elsevier, vol. 35(11), pages 2811-2819, November.
  11. Li, Xiaofei & Escalante, Cesar L. & Epperson, James E. & Gunter, Lewell F., 2012. "Agricultural Banking and Early Warning Models for the Bank Failures of the Late 2000s Great Recession," 2012 Annual Meeting, February 4-7, 2012, Birmingham, Alabama, Southern Agricultural Economics Association 119656, Southern Agricultural Economics Association.
  12. Ioannidis, Christos & Pasiouras, Fotios & Zopounidis, Constantin, 2010. "Assessing bank soundness with classification techniques," Omega, Elsevier, Elsevier, vol. 38(5), pages 345-357, October.
  13. David G. Mayes & Hanno Stremmel, 2014. "The Effectiveness of Capital Adequacy Measures in Predicting Bank Distress," SUERF Studies, SUERF - The European Money and Finance Forum, SUERF - The European Money and Finance Forum, number 2014/1, July.
  14. Sevim, Cuneyt & Oztekin, Asil & Bali, Ozkan & Gumus, Serkan & Guresen, Erkam, 2014. "Developing an early warning system to predict currency crises," European Journal of Operational Research, Elsevier, Elsevier, vol. 237(3), pages 1095-1104.
  15. Carlos Serrano-Cinca & Y. Fuertes-Callén & Begoña Gutiérrez-Nieto & B. Cuéllar-Fernández, 2011. "Path modeling to bankruptcy: causes and symptoms of the banking crisis," Working Papers CEB, ULB -- Universite Libre de Bruxelles 11-007, ULB -- Universite Libre de Bruxelles.
  16. Tatom, John, 2011. "Predicting failure in the commercial banking industry," MPRA Paper 34608, University Library of Munich, Germany.
  17. Betz, Frank & Oprica, Silviu & Peltonen, Tuomas A. & Sarlin, Peter, 2013. "Predicting distress in European banks," Working Paper Series, European Central Bank 1597, European Central Bank.
  18. Fiordelisi, Franco & Mare, Davide Salvatore, 2013. "Probability of default and efficiency in cooperative banking," Journal of International Financial Markets, Institutions and Money, Elsevier, Elsevier, vol. 26(C), pages 30-45.
  19. Premachandra, I.M. & Chen, Yao & Watson, John, 2011. "DEA as a tool for predicting corporate failure and success: A case of bankruptcy assessment," Omega, Elsevier, Elsevier, vol. 39(6), pages 620-626, December.

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