DETERMINANTS OF FINANCIAL DISTRESS IN LARGE FINANCIAL INSTITUTIONS: EVIDENCE FROM U.S. BANK HOLDING COMPANIES

Zhichao Zhang (), Li Xie, Xiangyun Lu and Zhuang Zhang ()

Contemporary Economic Policy, 2016, vol. 34, issue 2, 250-267

Abstract: type="main" xml:id="coep12105-abs-0001"> We investigate determinants of financial distress in large financial institutions based on the Distance-to-Default and Z-Scores measures. Using data of U.S. bank holding companies (BHCs), we find that the housing price index is a consistently significant factor across all BHCs and the non-performing loan ratio is the most powerful indicator for financial distress. Short-term wholesale funding is also a reliable default risk indicator. We additionally find that all the three regulatory capital requirements are very important for controlling default risk, particularly in the post-crisis period. (JEL C53, G14, G21, G28)

Date: 2016
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