Robust lessons learned from bank failures during the Great Financial Crisis

Cullen Goenner

Review of Quantitative Finance and Accounting, 2024, vol. 62, issue 2, No 3, 449-498

Abstract: Abstract Several empirical studies have identified unique characteristics of banks that subsequently failed during the Great Financial Crisis. The notion is that by identifying these risk characteristics we are better able to monitor and regulate the risks to banks during the next crisis. A concern is bank failure is a relatively rare event, therefore inferences based on a single model specification can be sensitive to the choice of variables. We re-examine three studies (DeYoung and Torna in J Financ Intermed 22:397–421, 2013; Jin et al. in J Bank Finance 35:2811–2819, 2011; Ng and Roychowdhury in Rev Acc Stud 19:1234–1279, 2014) of bank failures during the Great Financial Crisis to determine whether these authors’ main findings are robust to accounting for uncertainty in the model’s specification. Our results indicate their results are not robust and that the causes of bank failures during the Great Financial Crisis are similar to those of past periods of crisis and are driven by traditional measures of risk.

Keywords: Bank failure; Model risk; Audit quality; Loan loss reserves; Banking crisis (search for similar items in EconPapers)
JEL-codes: G17 G21 G28 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s11156-023-01213-9

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