Explaining time to bank failure in Colombia during the financial crisis of the late 1990s
This paper identifies the main bank specific determinants of time to failure during the financial crisis in Colombia using duration analysis. Using partial likelihood estimation, it shows that the process of failure of financial institutions during that period was not a merely random process; instead, it can be explained by differences in financial health and prudence existing across institutions. Among the relevant indicators that explain bank failure, the capitalization ratio appears to be the most significant one. Increases in this ratio lead to a reduction in the hazard rate of failure at any given moment in time. Of special relevance, this ratio exhibits a non-linear component. Other important variables explaining bank failure dynamics are profitability of assets and the ratio of non-performing loans to total loans. Leverage appears to affect the hazard rate also, but with lower statistical significance.
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- Peek, Joe & Rosengren, Eric, 1995.
"Bank regulation and the credit crunch,"
Journal of Banking & Finance,
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- Gary Whalen, 1991. "A proportional hazards model of bank failure: an examination of its usefulness as an early warning tool," Economic Review, Federal Reserve Bank of Cleveland, issue Q I, pages 21-31.
- David C. Wheelock & Paul W. Wilson, 2000. "Why do Banks Disappear? The Determinants of U.S. Bank Failures and Acquisitions," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 127-138, February.
- David C. Wheelock & Paul W. Wilson, 1995. "Why do banks disappear? The determinants of U.S. bank failures and acquisitions," Working Papers 1995-013, Federal Reserve Bank of St. Louis.
- Robert Billings & Brenda Gonzalez-Hermosillo & Ceyla Pazarbasioglu, 1996. "Banking System Fragility; Likelihood Versus Timing of Failure: An Application to the Mexican Financial Crisis," IMF Working Papers 96/142, International Monetary Fund. Full references (including those not matched with items on IDEAS)
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