Determinants of financial distress in u.s. large bank holding companies

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

MPRA Paper from University Library of Munich, Germany

Abstract: With a sample of 354 U.S. large bank holding companies, this paper investigates the determination of financial distress in financial institutions. We find that: (1) the house price index is consistently significant and positively associated with the Distance-to-Default (DD) measure in the U.S. banking market; (2) all the three major banking risk characteristics i.e. non-performing loans, short-term wholesale funding, and the credit-risk indicator are reliable factors behind DD determination; (3) for the two alternative measures of BHC activity diversification, non-interest income is positively related with BHCs’ DD whereas off-balance-sheet activity is negatively associated to the financial distress measure; and (4) Relevant capital requirements indicators including Tier I Risk-Based Capital Ratio, Total Risk-Based Capital Ratio, Tier I Leverage Ratio should be taken in regulatory assessment of BHCs’ financial distress.

Keywords: Bank Holding Company; Distance-to-Default; Financial distress; Bank regulation; Capital requirements; Non-interest income; Off-balance-sheet activities. (search for similar items in EconPapers)
JEL-codes: C53 G14 G21 G28 (search for similar items in EconPapers)
Date: 2014-01-31
New Economics Papers: this item is included in nep-ban, nep-rmg and nep-sog
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