Factors that Affect Bank Stability

Thomas Eisenbach and Tanju Yorulmazer

No 20140226, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: In a previous Liberty Street Economics post, we introduced a framework for thinking about the risks banks face. In particular, we distinguished between asset return risk and funding risk that can interact and cause a bank to fail. In our framework, a bank can fail for two reasons: 1-Low asset returns: Fundamental insolvency due to erosion of equity by low asset returns that don’t cover a bank’s debt burden. 2-Loss of funding: Costly liquidation of assets that erode equity.

Keywords: solvency; bank runs; liquidity; Funding models (search for similar items in EconPapers)
JEL-codes: G1 G2 (search for similar items in EconPapers)
Date: 2014-02-26
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