The United Kingdom's small banks' crisis of the early 1990s: what were the leading indicators of failure?

Andrew Logan

Bank of England working papers from Bank of England

Abstract: The announcement of BCCI's closure on 5 July 1991 rapidly accelerated the withdrawal of wholesale funds from small and medium-sized UK banks. Within three years, a quarter of the banks in this sector had, in some sense, failed. This study employs a logit model to analyse at two points prior to the crisis the distinct characteristics of the banks that failed compared with those that survived. Perhaps not surprisingly, a number of measures of bank weakness - low loan growth, poor profitability and illiquidity - are found to be good short-term predictors of failure, as are a high dependence on net interest income and low leverage. The best longer-term leading indicator of future failure, however, is rapid loan growth at the peak of the previous boom.

Date: 2001-07
New Economics Papers: this item is included in nep-cba and nep-eec
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:139

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