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A comparison of community bank failures and FDIC losses in the 1986–92 and 2007–13 banking crises

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  • Balla, Eliana
  • Mazur, Laurel C.
  • Prescott, Edward Simpson
  • Walter, John R.

Abstract

Failures and FDIC losses for community banks during the banking crises of the late 1980s and late 2000s are compared. Despite increases in risky commercial real estate (CRE) lending and more severe economic shocks in the recent crisis, failure rates were lower. We find that other changes in bank characteristics, like higher capital, made community banks more resilient to shocks. In contrast, FDIC losses on failed banks were higher. These are not explained by changes in CRE exposure or economic shocks. We find that an interest-receivable variable is predictive of failures and FDIC losses. Implications for prompt corrective action are discussed.

Suggested Citation

  • Balla, Eliana & Mazur, Laurel C. & Prescott, Edward Simpson & Walter, John R., 2019. "A comparison of community bank failures and FDIC losses in the 1986–92 and 2007–13 banking crises," Journal of Banking & Finance, Elsevier, vol. 106(C), pages 1-15.
    • Handle: RePEc:eee:jbfina:v:106:y:2019:i:c:p:1-15
    DOI: 10.1016/j.jbankfin.2019.04.005
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    Cited by:

    1. Allen, Kyle D. & Whitledge, Matthew D. & Winters, Drew B., 2022. "Community bank liquidity: Natural disasters as a natural experiment," Journal of Financial Stability, Elsevier, vol. 60(C).
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    3. Padma Sharma, 2022. "Assessing Regulatory Responses to Banking Crises," Research Working Paper RWP 22-04, Federal Reserve Bank of Kansas City.

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    More about this item

    Keywords

    Bank regulation; Bank failures; Prompt corrective action; FDIC losses;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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