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The Contribution of On‐Site Examination Ratings to an Empirical Model of Bank Failures

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  • David C. Wheelock
  • Paul W. Wilso

Abstract

This paper investigates how well regulator examinations predict bank failures, and how best to incorporate examination information into an econometric model of time-to-failure. We estimate proportional hazard models with time-varying covariates and find that examiner ratings help explain the failure hazard. Both the overall rating of a bank's condition and management, i.e., the composite CAMELS rating, and ratings of specific components contain information. In addition, we find that the marginal \"effect\" of ratings is non-linear, in that the impact of a rating downgrade on the probability of failure is larger, the weaker a bank's initial rating.
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Suggested Citation

  • David C. Wheelock & Paul W. Wilso, 2005. "The Contribution of On‐Site Examination Ratings to an Empirical Model of Bank Failures," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 4(4), pages 110-133, April.
    • Handle: RePEc:eme:rafpps:eb043440
    DOI: 10.1108/eb043440
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    Cited by:

    1. is not listed on IDEAS
    2. David C Wheelock & Paul W Wilson, 2004. "Consolidation in US banking: Which banks engage in mergers?," Review of Financial Economics, John Wiley & Sons, vol. 13(1-2), pages 7-39.
    3. Thomas B. King & Daniel A. Nuxoll & Timothy J. Yeager, 2006. "Are the causes of bank distress changing? can researchers keep up?," Review, Federal Reserve Bank of St. Louis, vol. 88(Jan), pages 57-80.

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