Bank failure Research Papers - Academia.edu (original) (raw)

Bank failures are costly to customers and the wider market. Prevention is always better than cure but in light of recent economic downturns, it has become increasingly difficult for regulators to allocate more resources towards in-depth... more

Bank failures are costly to customers and the wider market. Prevention is always better than cure but in light of recent economic downturns, it has become increasingly difficult for regulators to allocate more resources towards in-depth monitoring of banking practices. In this paper, we construct a tool that is able to predict bank failures ahead of time with reasonable accuracy. Through a logistic regression on a matched sample of 536 failed and non-failed US banks, we determine the financial indicators that most accurately predicts bank failure. From the regression, we construct a Bank Health Index that assesses a bank’s propensity to failure. In-sample and out-of-sample tests show that our model is about 90% accurate two years prior to failure, and 95% accurate the year before failure. The accuracy and efficiency of the model and index provides a more efficient and effective tool for assessing a bank’s propensity to failure besides requiring far less resources. With these methods...

This paper, authored by Timothy M. Njagi, examines the imminent collapse of the global financial system, drawing parallels to the unresolved issues of the 2008 economic crisis. It highlights several global indicators, including... more

This paper, authored by Timothy M. Njagi, examines the imminent collapse of the global financial system, drawing parallels to the unresolved issues of the 2008 economic crisis. It highlights several global indicators, including unprecedented debt levels, inflation, bank failures, and growing economic disparities, which suggest that the world is on the brink of another financial meltdown. The paper emphasizes Kenya's vulnerability to this impending crisis due to its dependence on external borrowing, currency depreciation, inflation, and a fragile banking sector. To mitigate these risks, the paper proposes key steps for Kenya, including economic diversification, strengthening financial regulations, promoting savings, preparing for currency fluctuations, and focusing on sustainable development. The paper underscores the urgency of taking proactive measures to protect Kenya and build a resilient economy in the face of an inevitable global financial collapse.

I’ve written about how the West suffers from an excess of intellectuals—too many people employed by too many universities that produce too many books that nobody reads, and that nobody should read. The problem is acute in the United... more

I’ve written about how the West suffers from an excess of intellectuals—too many people employed by too many universities that produce too many books that nobody reads, and that nobody should read. The problem is acute in the United States. Around 1970, a guilt-driven fit of egalitarianism made us decide everyone deserved a college degree and good grades. We also prioritized genetic diversity and grievance over merit, ability, and preparation. The result was a huge bubble in the humanities—useless fields like sociology, literature, psychology, and economics. And we’ve watched the bubble’s effects go much further.

This paper presents an application of the split-population duration model in identifying operating strategies and structural attributes of commercial banks that increased their financial and temporal endurance (translated into probability... more

This paper presents an application of the split-population duration model in identifying operating strategies and structural attributes of commercial banks that increased their financial and temporal endurance (translated into probability and duration of survival, respectively) during the late 2000s recession. This study’s results identify the isolated effects of certain variables on a bank’s temporal endurance that have not been captured by other commonly used survival models. For instance, delinquency rates for consumer and industrial loans have separate adverse effects on the banks’ chances of survival and temporal endurance, respectively, while real estate loan delinquency rates negatively affect both survival parameters. Aside from the loan portfolio composition effects, interest rate risk, fund sourcing strategies, and business size could also significantly influence a bank’s survival through the financial crises.

Hydrogemorphic linkages related to sediment transport in headwater streams following basin wide clear‐cut logging on Prince of Wales Island, southeast Alaska, were investigated. Landslides and debris flows transported sediment and woody... more

Hydrogemorphic linkages related to sediment transport in headwater streams following basin wide clear‐cut logging on Prince of Wales Island, southeast Alaska, were investigated. Landslides and debris flows transported sediment and woody debris in headwater tributaries in 1961, 1979, and 1993. Widespread landsliding in 1961 and 1993 was triggered by rainstorms with recurrence intervals (24 h precipitation) of 7·0 years and 4·2 years respectively. Occurrence, distribution, and downstream effects of these mass movements were controlled by landform characteristics such as channel gradient and valley configuration. Landslides and channelized debris flows created exposed bedrock reaches, log jams, fans, and abandoned channels. The terminus of the deposits did not enter main channels because debris flows spread and thinned on the unconfined bottom of the U‐shaped glaciated valley. Chronic sediment input to channels included surface erosion of exposed till (rain splash, sheet erosion, and f...

The focus of this research is to demonstrate how probabilistic models may be used to provide early warnings for bank failures. While prior research in the auditing literature has recognized the applicability of a Bayesian belief revision... more

The focus of this research is to demonstrate how probabilistic models may be used to provide early warnings for bank failures. While prior research in the auditing literature has recognized the applicability of a Bayesian belief revision framework for many audit tasks, empirical evidence has suggested that auditors' cognitive decision processes often violate probability axioms. We believe that some of the well-documented cognitive limitations of a human auditor can be compensated by an automated system. In particular, we demonstrate that a formal belief revision scheme can be incorporated into an automated system to provide reliable probability estimates for early warning of bank failures. The automated system examines financial ratios as predictors of a bank's performance and assesses the posterior probability of a banks financial health (alternatively, financial distress). We examine two different probabilistic models, one that is simpler and makes more assumptions, while ...

Purpose Motivated by agency theory, this paper aims to explore the impact of bank diversification and bank independency on the likelihood of bank failure. The effects of corporate governance (ownership and board structures) are also... more

Purpose Motivated by agency theory, this paper aims to explore the impact of bank diversification and bank independency on the likelihood of bank failure. The effects of corporate governance (ownership and board structures) are also examined. Design/methodology/approach Logistic regressions are used to explore the role of corporate governance on bank failure risk. This sample covers 608 banks from eight European countries. Findings The results suggest that the well-documented finding that diversification and bank independency may increase bank failure risk does not persist under strong corporate governance mechanism. Thus, to reduce the bank failure risk, diversification should be strongly monitored by the management to avoid excessive risk-taking by shareholders. Originality/value The approach used in this study differs from that used in previous studies from certain perspectives. First, unlike most previous studies that focused on the relationship between bank performance and bank...

Banking risk measurement and management remain one of many challenges for managers and policymakers. This study contributes to the banking literature and practice in two ways by (a) proposing a risk ranking index based on the Mahalanobis... more

Banking risk measurement and management remain one of many challenges for managers and policymakers. This study contributes to the banking literature and practice in two ways by (a) proposing a risk ranking index based on the Mahalanobis Distance (MD) between a multidimensional point representing a bank’s risk measures and the corresponding critical ratios set by the banking authorities and (b) determining the relative importance of a bank’s risk ratios in affecting its financial standing using an Adaptive Neuro-Fuzzy Inference System. In this study, ten financial ratios representing five risk areas were considered, namely: Capital Adequacy, Credit, Liquidity, Earning Quality, and Operational risk. Data from 45 Gulf banks for the period 2016–2020 was used to develop the model. Our findings indicate that a bank is in a sound risk position at the 99%, 95%, and 90% confidence level if its Mahalanobis distance exceeds 4.82, 4.28, and 4.0, respectively. The maximum distance computed for ...

This study examined CAMELS analysis of Nigerian quoted commercial banks from 1997– 2016 pre and post consolidation. The objective was to x-ray and compare the Nigerian banking system soundness in the pre and post consolidation using the... more

This study examined CAMELS analysis of Nigerian quoted commercial banks from 1997– 2016 pre and post consolidation. The objective was to x-ray and compare the Nigerian banking system soundness in the pre and post consolidation using the CAMELS criteria. Time series data of the variables were sourced from financial statements of the quoted deposit money banks within the period. The study used Capital to Risk Assets Ratio (CRA) and Adjusted Capital to Risk Assets (ACRA) as Capital Adequacy (C), Non Performing Loans and Advances to Total Assets (TLA/TA) as Assets Quality (A), Operating Expenses to Total Assets (OPE/TA), Total loans and Advances to Total Deposit (TLA/TD) as Management Quality (M), Net Interest Income to Total Assets (NII/TA) as Earnings (E), Total Liquid Assets to Total Assets (L) as liquidity (TLA/TA) and Net Interest Income to Gross Domestic Product (S) (TLA/GDP) as sensitivity. Simple average and ranking was used as data analysis method. Findings revealed that the p...

In this study, we coupled principal component analysis with discriminant model to predict the probability of bank failure in Nigeria. Our empirical analysis reveals that the warning signal so developed produces a robust result with high... more

In this study, we coupled principal component analysis with discriminant model to predict the probability of bank failure in Nigeria. Our empirical analysis reveals that the warning signal so developed produces a robust result with high prediction accuracy. This is a very promising result as it indicates its invaluable usefulness for regulators in assessing the health status of banks of interest. The analysis of the regression model indicates that the measures of profitability, liquidity, credit risk and capital adequacy are the key predictive financial ratios. In other words, differences in profitability, liquidity, credit risk (asset quality) and capital adequacy (sustenance) are found to be the major distinguishing characteristics between the non-failed (healthy) and failed banks. However, variables for management quality and other bank characteristics like economic conditions and staff productivity are potentially not important predictors of financial problems in Nigerian banks ...