US bank failure and bailout during the financial crisis

Wenling Lu and David A. Whidbee

Journal of Financial Economic Policy, 2016, vol. 8, issue 3, 316-347

Abstract: Purpose - This paper aims to examine the characteristics of banks that were the target of intervention in the form of bailout or failure during the financial crisis and, of those subjected to intervention, what characteristics distinguish those that received bailout funds from those that were deemed failures. Design/methodology/approach - The study estimates a series of logit regressions in an effort to identify the causes of regulatory intervention while controlling for bank-level characteristics and the economic and regulatory environment. Findings - The empirical results indicate that many of the same characteristics associated with banks receiving bailout funds are similar to the characteristics associated with failed banks. However, non-performing loans increased the likelihood of failure, but reduced the likelihood of a bank receiving Capital Purchase Program (CPP) funds, suggesting that regulatory authorities discriminated in their use of CPP funds based on the quality of a bank’s asset portfolio. Further, those banks located in states with limits onde novobranching and those banks that are part of a multi-bank holding company structure were less likely to fail but were more likely to receive CPP funds. Originality/value - This paper provides a comprehensive analysis of regulatory intervention in the banking industry during the late 2000s financial crisis and the impact of different banking organizational structures, economic circumstances, and financial fragility on the likelihood of a bank failing or receiving bailout funds.

Keywords: Organizational structure; Financial crisis; Bank failure; Bank bailout; G20; G21; G28 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfeppp:v:8:y:2016:i:3:p:316-347

DOI: 10.1108/JFEP-02-2016-0011

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