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The determinants of UK credit union failure

Author

Listed:
  • Coen, Jamie

    () (Bank of England)

  • Francis, William

    () (Bank of England)

  • Rostom, May

    () (Bank of England)

Abstract

This paper examines the determinants of credit union failure in the United Kingdom. Using regulatory data on credit unions, we estimate several discrete-time logit models and evaluate their predictive ability at one, two and three-year time horizons. We find that a small set of financial attributes related to capital adequacy, asset quality, earnings performance and liquidity is useful for early identification of troubled credit unions. Both in and out-of-sample results indicate that this parsimonious set of firm-level characteristics, augmented with national and regional unemployment rates, reliably identifies failures while keeping false alarm rates at modest levels. The results provide support for establishing early-warning criteria for supervisory use in monitoring credit unions.

Suggested Citation

  • Coen, Jamie & Francis, William & Rostom, May, 2017. "The determinants of UK credit union failure," Bank of England working papers 658, Bank of England.
  • Handle: RePEc:boe:boeewp:0658
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    References listed on IDEAS

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    More about this item

    Keywords

    Credit unions; failure; early warning; logit; policymaker loss function;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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