Why Do Banks Fail? Three Facts About Failing Banks

Sergio Correia, Stephan Luck and Emil Verner

No 20241121, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: Why do banks fail? In a new working paper, we study more than 5,000 bank failures in the U.S. from 1865 to the present to understand whether failures are primarily caused by bank runs or by deteriorating solvency. In this first of three posts, we document that failing banks are characterized by rising asset losses, deteriorating solvency, and an increasing reliance on expensive noncore funding. Further, we find that problems in failing banks are often the consequence of rapid asset growth in the preceding decade.

Keywords: financial crises; deposit insurance; bank runs; bank failures (search for similar items in EconPapers)
JEL-codes: G21 (search for similar items in EconPapers)
Date: 2024-11-21
New Economics Papers: this item is included in nep-ban, nep-fdg, nep-mon and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fednls:99160

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