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Path modeling to bankruptcy: causes and symptoms of the banking crisis

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  • Carlos Serrano-Cinca
  • Y. Fuertes-Callén
  • Begoña Gutiérrez-Nieto
  • B. Cuéllar-Fernández

Abstract

This paper studies the bankruptcy of USA banks since 2009. It first analyzes the financial symptoms that precede bankruptcy, such as low profitability, insufficient revenue, or low solvency ratios. It also goes into the causes of these symptoms. It poses several hypotheses on causes of failure, such as loans growth (some of them risky), specialization (in this case concentration in real estate), and the pursuit of a turnover-driven strategy neglecting margin. It presents and tests a path modeling to bankruptcy based on structural equations, hypotheses tests and logistic regression. Results show that, five years before the crisis, failed banks had, compared to solvent banks, the following: higher loan growths, higher concentration on real estate loans, higher risk ratios, higher turnover, but lower margins. A relationship is found between symptoms and causes. Failed banks present a significant relationship between the percentage of real estate loans and risk. This relationship is negative in excellent banks, confirming that they allocated less real estate loans with higher quality. Non-failed banks compensated increases in risk by strengthening their core capital.

Suggested Citation

  • Carlos Serrano-Cinca & Y. Fuertes-Callén & Begoña Gutiérrez-Nieto & B. Cuéllar-Fernández, 2011. "Path modeling to bankruptcy: causes and symptoms of the banking crisis," Working Papers CEB 11-007, ULB -- Universite Libre de Bruxelles.
    • Handle: RePEc:sol:wpaper:2013/78756
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    Cited by:

    1. Karlo Kauko, 2021. "The Vanishing Interest Income of Chinese Banks," Asian Economic Papers, MIT Press, vol. 20(3), pages 94-113, Fall.
    2. Karlo Kauko, 2021. "The Vanishing Interest Income of Chinese Banks," Asian Economic Papers, MIT Press, vol. 20(3), pages 94-113, Fall.
    3. repec:zbw:bofitp:2020_002 is not listed on IDEAS
    4. Mohamed M. Khalifa Tailab, 2020. "Using Importance-Performance Matrix Analysis to Evaluate the Financial Performance of American Banks During the Financial Crisis," SAGE Open, , vol. 10(1), pages 21582440209, January.
    5. ben Jabeur, Sami & Mefteh-Wali, Salma & Carmona, Pedro, 2021. "The impact of institutional and macroeconomic conditions on aggregate business bankruptcy," Structural Change and Economic Dynamics, Elsevier, vol. 59(C), pages 108-119.

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    More about this item

    Keywords

    Bankruptcy; Financial ratios; banking crisis; solvency; PLS-Path;
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