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Bank structure and failure during the financial crisis

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  • Wenling Lu
  • David A. Whidbee

Abstract

Purpose - This paper aims to examine the impact of charter type (national vs state), holding company structure, and measures of bank fragility on the likelihood of bank failure during the late 2000s financial crisis. Design/methodology/approach - The study estimates a series of logit regressions in an effort to identify the causes of failure and assess the role of the bank‐level characteristics while controlling for the economic and regulatory environment. Findings - The empirical results indicate that established institutions were more likely to fail, dependent upon whether a bank received bailout funds or not, if they were relatively large, had relatively low capital ratios, had relatively low liquidity, relied more heavily on brokered deposits, held a relatively large portfolio of real estate loans, had a relatively large proportion of non performing loans, and had less income diversity. Consistent with being financially fragile, de novo banks and those banks that grew substantially prior to the crisis faced an increased likelihood of failure relative to established banks. However, capital levels were not significantly related to the likelihood of failure in de novo institutions. Originality/value - This paper provides a comprehensive analysis of the possible business models' impact on the likelihood of failure during the recent financial crisis. It contributes to the ongoing debate regarding appropriate regulatory reform in the banking industry by shedding light on the extent to which the business model decisions made by bank managers have an impact on the stability of the banking system.

Suggested Citation

  • Wenling Lu & David A. Whidbee, 2013. "Bank structure and failure during the financial crisis," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 5(3), pages 281-299, July.
  • Handle: RePEc:eme:jfeppp:v:5:y:2013:i:3:p:281-299
    DOI: 10.1108/JFEP-02-2013-0006
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    Citations

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    Cited by:

    1. Ghosh, Amit, 2017. "Do bank failures still matter in affecting regional economic activity?," Journal of Economics and Business, Elsevier, vol. 90(C), pages 1-16.
    2. Suarez, Javier & Sánchez Serrano, Antonio, 2018. "Approaching non-performing loans from a macroprudential angle," Report of the Advisory Scientific Committee 7, European Systemic Risk Board.
    3. Papanikolaou, Nikolaos I., 2018. "To be bailed out or to be left to fail? A dynamic competing risks hazard analysis," Journal of Financial Stability, Elsevier, vol. 34(C), pages 61-85.
    4. Sánchez Serrano, Antonio, 2021. "The impact of non-performing loans on bank lending in Europe: An empirical analysis," The North American Journal of Economics and Finance, Elsevier, vol. 55(C).
    5. International Monetary Fund & World Bank, 2017. "Bulgaria Financial Sector Assessment Program," World Bank Publications - Reports 27535, The World Bank Group.
    6. Van-Thep Nguyen & Day-Yang Liu, 2020. "The Impact of Ownership Structure on Vietnamese Commercial Banks' Profitability," International Journal of Economics and Financial Issues, Econjournals, vol. 10(3), pages 187-194.
    7. JAMES Hannah & CASEY Michael & MITCHELL David, 2019. "Decline In State Chartered Banks:Causes, Concerns, And Conclusions," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 14(1), pages 99-110, April.
    8. Tarchouna, Ameni & Jarraya, Bilel & Bouri, Abdelfettah, 2017. "How to explain non-performing loans by many corporate governance variables simultaneously? A corporate governance index is built to US commercial banks," Research in International Business and Finance, Elsevier, vol. 42(C), pages 645-657.
    9. James R. Barth & Wenling Lu & Yanfei Sun, 2020. "Regulatory Restrictions on US Bank Funding Sources: A Review of the Treatment of Brokered Deposits," JRFM, MDPI, vol. 13(6), pages 1-27, June.
    10. Michael Adusei & Ngozi Adeleye & Beatrice Sarpong‐Danquah, 2022. "Legal cost of contract enforcement and nonperforming loans: Is credit information sharing relevant?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(6), pages 2501-2514, September.
    11. Cebula, Richard J. & Xu, Jiay, 2023. "A Brief Survey of Recent Studies of Bank Failures in the U.S," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 76(2), pages 265-274.
    12. Ameni Tarchouna & Bilel Jarraya & Abdelfettah Bouri, 2022. "Do board characteristics and ownership structure matter for bank non-performing loans? Empirical evidence from US commercial banks," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 26(2), pages 479-518, June.
    13. Subhan Ullah & Sardar Ahmad & Saeed Akbar & Devendra Kodwani & Jane Frecknall‐Hughes, 2021. "Governance disclosure quality and market valuation of firms in UK and Germany," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 5031-5055, October.

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