Predicting Failure in the Commercial Banking Industry

John Tatom and Reza Houston

No 2011-WP-27, NFI Working Papers from Indiana State University, Scott College of Business, Networks Financial Institute

Abstract: The ability to predict bank failure has become much more important since the mortgage foreclosure crisis began in 2007. The model proposed in this study uses proxies for the regulatory standards embodied in the so-called CAMELS rating system, as well as several local or national economic variables to produce a model that is robust enough to forecast bank failure for the entire commercial bank industry in the United States. This model is able to predict failure (survival) accurately for commercial banks during both the savings and loan and the mortgage foreclosure crises. Other important results include the insignificance of several factors proposed in the literature, including total assets, real price of energy, currency ratio and the interest rate spread.

Keywords: Bank failure; banking crises; CAMELS ratings (search for similar items in EconPapers)
JEL-codes: G01 G17 G21 G33 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2011-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Working Paper: Predicting failure in the commercial banking industry (2011)
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