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

Carlos Serrano-Cinca (), Yolanda Fuertes (), Begoña Gutiérrez-Nieto and B. Cuéllar-Fernández

No 11-007, Working Papers CEB from ULB -- Universite Libre de Bruxelles

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.

Keywords: Bankruptcy; Financial ratios; banking crisis; solvency; PLS-Path (search for similar items in EconPapers)
Pages: 23 p.
Date: 2011-03
New Economics Papers: this item is included in nep-ban, nep-cfn and nep-rmg
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Journal Article: Path modelling to bankruptcy: causes and symptoms of the banking crisis (2014)
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