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Forecasting Bank Leverage

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  • Gerhard Hambusch
  • Sherrill Shaffer

Abstract

Standard early warning models to predict bank failures cannot be estimated during periods of few or zero failures, precluding any updating of such models during times of good performance. Here we address this problem using an alternative approach, forecasting the simple leverage ratio (equity/assets) as a continuous variable that does not suffer from the small sample problem. Out-of-sample performance shows some promise as a supplement to the standard approach, despite measurable deterioration in prediction accuracy during the crisis years.

Suggested Citation

  • Gerhard Hambusch & Sherrill Shaffer, 2012. "Forecasting Bank Leverage," CAMA Working Papers 2012-56, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  • Handle: RePEc:een:camaaa:2012-56
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    References listed on IDEAS

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    Cited by:

    1. Pilar B. à lvarez-Franco & Diego A. Restrepo-Tobón, 2016. "Managerial efficiency and failure of U.S. commercial banks during the 2007-2009 financial crisis: was this time different?," Revista Ecos de Economía, Universidad EAFIT, vol. 20(43), pages 4-22, December.
    2. E Philip Davis & Dilruba Karim & Dennison Noel, 2019. "The Bank Capital-Competition-Risk Nexus - A Global Perspective," National Institute of Economic and Social Research (NIESR) Discussion Papers 500, National Institute of Economic and Social Research.
    3. E Philip Davis & Dilruba Karim & Dennison Noel, 2019. "Bank Leverage Ratios, Risk and Competition - An Investigation Using Individual Bank Data," National Institute of Economic and Social Research (NIESR) Discussion Papers 499, National Institute of Economic and Social Research.
    4. Davis, E. Philip & Karim, Dilruba & Noel, Dennison, 2020. "The bank capital-competition-risk nexus – A global perspective," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 65(C).

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    More about this item

    Keywords

    Bank leverage; forecasts; early warning;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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