The role of the term structure of interest rates in bank-failure-prediction models.
Aspects of the relationship between the term structure of interest rates and bank failure from 1984 to 1989 are explored in the context of a bank-failure-prediction model. For this, the logit technique is employed. Interest rate variables used to characterize the term structure include Treasury, Federal-funds, and bank-certificate-of-deposit rates. The term structure proves a significant factor in determining the probability of bank failure. Changes in long-term rates relative to short-term rates can profoundly affect bank performance. These findings corroborate any measures being taken by banks or regulators to minimize banks' interest rate risk exposure.
Authors: | Head, Anne M. |
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Institutions: | Florida Atlantic University |
Subject: | Finance | Business Administration | Banking |
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