Why Do Banks Fail? The Predictability of Bank Failures

Sergio Correia, Stephan Luck and Emil Verner

No 20241122, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: Can bank failures be predicted before they happen? In a previous post, we established three facts about failing banks that indicated that failing banks experience deteriorating fundamentals many years ahead of their failure and across a broad range of institutional settings. In this post, we document that bank failures are remarkably predictable based on simple accounting metrics from publicly available financial statements that measure a bank’s insolvency risk and funding vulnerabilities.

Keywords: bank runs; financial crises; deposit insurance; bank failures (search for similar items in EconPapers)
JEL-codes: G01 G2 (search for similar items in EconPapers)
Date: 2024-11-22
New Economics Papers: this item is included in nep-acc, nep-ban, nep-fdg and nep-rmg
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