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Bank Failures and the Source of Strength Doctrine

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  • Vincent Bouvatier
  • Michael Brei
  • Xi Yang

Abstract

This paper examines the determinants of bank failures in the US banking system during the recent financial crisis. The analysis employs a dataset on the financial statements of FDIC-insured commercial banks and their bank holding companies, along with information on bank failures, mergers, and acquisitions. The econometric evidence suggests that failed banks have been characterized by significantly higher loan growth rates, well ahead of the financial crisis, coupled with higher exposures to the mortgage market segment and to funding in the form of brokered deposits. We also find evidence that commercial banks have been less likely to fail, when they belonged to well-capitalized and profitable bank holding companies with lower exposures to short-term funding. Our results provide empirical support for the recent modifications in bank regulation and supervision which introduce countercyclical components for capital buffers and a more comprehensive supervision of consolidated banking groups.

Suggested Citation

  • Vincent Bouvatier & Michael Brei & Xi Yang, 2014. "Bank Failures and the Source of Strength Doctrine," EconomiX Working Papers 2014-15, University of Paris Nanterre, EconomiX.
  • Handle: RePEc:drm:wpaper:2014-15
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    File URL: http://economix.fr/pdf/dt/2014/WP_EcoX_2014-15.pdf
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    References listed on IDEAS

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    Cited by:

    1. repec:ipg:wpaper:2014-468 is not listed on IDEAS
    2. repec:ipg:wpaper:2014-531 is not listed on IDEAS
    3. repec:ipg:wpaper:2014-511 is not listed on IDEAS
    4. repec:ipg:wpaper:2014-510 is not listed on IDEAS
    5. repec:ipg:wpaper:2014-604 is not listed on IDEAS
    6. Xi Yang, 2016. "Predicting bank failures: The leverage versus the risk-weighted capital ratio," EconomiX Working Papers 2016-15, University of Paris Nanterre, EconomiX.

    More about this item

    Keywords

    financial crises; bank failures; bank regulation.;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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