Explaining Bank Failures: Deposit Insurance, Regulation, and Efficiency
This paper uses micro-level historical data to examine the causes of bank failure. For state-chartered Kansas banks during 1910-28, time-to-failure is explicitly modeled using a proportional hazards framework. In addition to standard financial ratios, this study includes membership in the voluntary state deposit insurance system and a measure of technical efficiency to explain bank failure. The results indicate that deposit insurance system membership increased the probability of failure and technically inefficient banks were more likely to fail than technically efficient banks. Copyright 1995 by MIT Press.
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Volume (Year): 77 (1995)
Issue (Month): 4 (November)
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