Advanced Search
MyIDEAS: Login to save this paper or follow this series

Financial crises and bank failures: a review of prediction methods

Contents:

Author Info

  • Demyanyk , Yuliya

    ()
    (Federal Reserve Bank of Cleveland)

  • Hasan, Iftekhar

    ()
    (Rensselaer Polytechnic Institute, USA and Bank of Finland)

Abstract

In this article 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, as well as outlines of the methodologies used. We analyze financial and economic circumstances associated with the US subprime mortgage crisis and the global financial turmoil that has led to severe crises in many countries. The intent of the article is to promote future empirical research that might help to prevent bank failures and financial crises.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/0935netti.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Bank of Finland in its series Research Discussion Papers with number 35/2009.

as in new window
Length: 35 pages
Date of creation: 01 Dec 2009
Date of revision:
Handle: RePEc:hhs:bofrdp:2009_035

Contact details of provider:
Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.suomenpankki.fi/en/
More information through EDIRC

Related research

Keywords: financial crises; banking failures; operations research; early warning methods; leading indicators; subprime markets;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Andrei Shleifer & Robert W. Vishny, 1995. "A Survey of Corporate Governance," Harvard Institute of Economic Research Working Papers 1741, Harvard - Institute of Economic Research.
  2. Yongheng Deng & John M. Quigley & Robert Van Order, 2000. "Mortgage Terminations, Heterogeneity and the Exercise of Mortgage Options," Econometrica, Econometric Society, Econometric Society, vol. 68(2), pages 275-308, March.
  3. Cielen, Anja & Peeters, Ludo & Vanhoof, Koen, 2004. "Bankruptcy prediction using a data envelopment analysis," European Journal of Operational Research, Elsevier, Elsevier, vol. 154(2), pages 526-532, April.
  4. Molina, Carlos A., 2002. "Predicting bank failures using a hazard model: the Venezuelan banking crisis," Emerging Markets Review, Elsevier, Elsevier, vol. 3(1), pages 31-50, March.
  5. David C. Wheelock & Paul W. Wilson, 1995. "Why do banks disappear? The determinants of U.S. bank failures and acquisitions," Working Papers, Federal Reserve Bank of St. Louis 1995-013, Federal Reserve Bank of St. Louis.
  6. Demirguc-Kunt, Asli & Detragiache, Enrica & Gupta, Poonam, 2000. "Inside the crisis : an empirical analysis of banking systems in distress," Policy Research Working Paper Series 2431, The World Bank.
  7. Pennington-Cross, Anthony, 2003. "Credit History and the Performance of Prime and Nonprime Mortgages," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 27(3), pages 279-301, November.
  8. John M. Clapp & Yongheng Deng & Xudong An, 2006. "Unobserved Heterogeneity in Models of Competing Mortgage Termination Risks," Real Estate Economics, American Real Estate and Urban Economics Association, American Real Estate and Urban Economics Association, vol. 34(2), pages 243-273, 06.
  9. Yongheng Deng, . "Mortgage Termination: An Empirical Hazard Model with Stochastic Term Structure," Working Papers _002, University of California at Berkeley, Econometrics Laboratory Software Archive.
  10. Davis, E. Philip & Karim, Dilruba, 2008. "Comparing early warning systems for banking crises," Journal of Financial Stability, Elsevier, Elsevier, vol. 4(2), pages 89-120, June.
  11. Hunter, Greg, 2009. "Anatomy of the 2008 financial crisis: an economic analysis postmortem," Journal of Financial Transformation, Capco Institute, Capco Institute, vol. 27, pages 45-48.
  12. Demirguc-Kunt, Asli & Detragiache, Enrica, 2002. "Does deposit insurance increase banking system stability? An empirical investigation," Journal of Monetary Economics, Elsevier, Elsevier, vol. 49(7), pages 1373-1406, October.
  13. Calhoun, Charles A & Deng, Yongheng, 2002. "A Dynamic Analysis of Fixed- and Adjustable-Rate Mortgage Terminations," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 24(1-2), pages 9-33, Jan.-Marc.
  14. Canbas, Serpil & Cabuk, Altan & Kilic, Suleyman Bilgin, 2005. "Prediction of commercial bank failure via multivariate statistical analysis of financial structures: The Turkish case," European Journal of Operational Research, Elsevier, Elsevier, vol. 166(2), pages 528-546, October.
  15. Fotios Pasiouras & Chrysovalantis Gaganis & Michael Doumpos, 2007. "A multicriteria discrimination approach for the credit rating of Asian banks," Annals of Finance, Springer, Springer, vol. 3(3), pages 351-367, July.
  16. Yuliya Demyanyk, 2009. "Quick exits of subprime mortgages," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 79-94.
  17. Martin, Daniel, 1977. "Early warning of bank failure : A logit regression approach," Journal of Banking & Finance, Elsevier, Elsevier, vol. 1(3), pages 249-276, November.
  18. Atif Mian & Amir Sufi, 2008. "The Consequences of Mortgage Credit Expansion: Evidence from the 2007 Mortgage Default Crisis," NBER Working Papers 13936, National Bureau of Economic Research, Inc.
  19. Yongheng Deng & Andrey D. Pavlov & Lihong Yang, 2005. "Spatial Heterogeneity in Mortgage Terminations by Refinance, Sale and Default," Real Estate Economics, American Real Estate and Urban Economics Association, American Real Estate and Urban Economics Association, vol. 33(4), pages 739-764, December.
  20. Edward I. Altman, 1968. "Financial Ratios, Discriminant Analysis And The Prediction Of Corporate Bankruptcy," Journal of Finance, American Finance Association, American Finance Association, vol. 23(4), pages 589-609, 09.
  21. Brent W. Ambrose & Charles A. Capone, . "The Hazard Rates of First and Second Default," Zell/Lurie Center Working Papers 301, Wharton School Samuel Zell and Robert Lurie Real Estate Center, University of Pennsylvania.
  22. Tam, KY, 1991. "Neural network models and the prediction of bank bankruptcy," Omega, Elsevier, Elsevier, vol. 19(5), pages 429-445.
  23. Carmen M. Reinhart & Kenneth S. Rogoff, 2008. "Is the 2007 US Sub-prime Financial Crisis So Different? An International Historical Comparison," American Economic Review, American Economic Association, American Economic Association, vol. 98(2), pages 339-44, May.
  24. West, Robert Craig, 1985. "A factor-analytic approach to bank condition," Journal of Banking & Finance, Elsevier, Elsevier, vol. 9(2), pages 253-266, June.
  25. Kolari, James & Glennon, Dennis & Shin, Hwan & Caputo, Michele, 2002. "Predicting large US commercial bank failures," Journal of Economics and Business, Elsevier, Elsevier, vol. 54(4), pages 361-387.
  26. Zopounidis, Constantin & Doumpos, Michael, 1999. "A Multicriteria Decision Aid Methodology for Sorting Decision Problems: The Case of Financial Distress," Computational Economics, Society for Computational Economics, Society for Computational Economics, vol. 14(3), pages 197-218, December.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. 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.
  2. 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.
  3. 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.
  4. 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.
  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 PaÃ," 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. 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.
  7. Cole, Rebel A. & White, Lawrence J., 2010. "Déjà vu all over again: The causes of U.S. commercial bank failures this time around," MPRA Paper 24690, University Library of Munich, Germany, revised 28 Jul 2010.
  8. 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.
  9. 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.
  10. 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.
  11. David G. Mayes & Hanno Stremmel, 2014. "The Effectiveness of Capital Adequacy Measures in Predicting Bank Distress," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum, SUERF - The European Money and Finance Forum.
  12. Tatom, John, 2011. "Predicting failure in the commercial banking industry," MPRA Paper 34608, University Library of Munich, Germany.
  13. 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.
  14. Ioannidis, Christos & Pasiouras, Fotios & Zopounidis, Constantin, 2010. "Assessing bank soundness with classification techniques," Omega, Elsevier, Elsevier, vol. 38(5), pages 345-357, October.
  15. 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.
  16. 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.
  17. 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.
  18. 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.
  19. 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.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:hhs:bofrdp:2009_035. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Minna Nyman).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.