We replicate three bank failure models (Martin (1977), Cole and White (2012), and DeYoung and Torna (2013)) and introduce a new predictive model along with several evaluation methods to compare their out-of-sample predictive accuracy. We find that the models are highly accurate individually, and...

The recent financial crisis and economic recession has shown that bank failure in the United States, while rare is a concern during uncertain times. Understanding the magnitude of banks at risk early in a crisis is a key challenge faced by policymakers. Early warning models are quite accurate at...

We compare the out-of-sample accuracy of three methodologies—the time-varying hazard model of Shumway (2001), the static probit model used by Cole and Gunther (1998), and a static logistic regression model similar to Cole and White (2012)—in forecasting U.S. bank failures. When we limit all...

Using a large panel of US banks over the period 2008-2013, this paper proposes an early warning framework to identify bank heading to bankruptcy. We conduct a comparative analysis based on both Canonical Discriminant Analysis and Logit models to examine and to determine the most accurate one....

The Great Financial Crisis shows that bank failure in the United States, while rare, is a concern during uncertain times. Our interest is in the ability to predict future failures at the start of a crisis, when the recent past has few events on which to base our inferences. We show that...

In the recent crisis, the U.S. authorities bailed out numerous banks, while let many others to fail as going concern entities. Even though both interventions fully protect depositors, a bail out represents an implied subsidy to shareholders, which is not yet the case with closures where...

We examine sources of systemic risk (threshold size, complexity, and interconnectedness) with factors constructed from equity returns of large financial firms, after accounting for standard risk factors. From the factor loadings and factor returns, we estimate the implicit government subsidy for...

The Global Financial Crisis of 2007-2009 put the spotlight on the problem of too-big-to-fail (TBTF). The research conducted in this context has, however, generally focused on the econometric aspect and the contribution of the TBTF doctrine to the financial crisis of 2007-2009, while the economic...

Financial reform must not ignore the interests of small stakeholders – who must be regarded as too small to be counted. Making equity an explicit objective is delicate: it needs to be calibrated such that the vulnerable are not exposed to further risks. Policies outside the realm of financial...

This paper examines the 225 banks that failed between February 2, 2007, and April 23, 2010, comparing them to a random sample of banks that had not failed as of April 23, 2010. We performed regression and discriminant analysis on quarterly call report data for one year, two years, three years,...