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Proportional Hazards Model of Bank Failure: Evidence from USA

Author

Listed:
  • Raymond A. K. Cox

    (Thompson Rivers University, Canada)

  • Randall K. Kimmel

    (Thompson Rivers University, Canada)

  • Grace W.Y. Wang

    (Texas A & M University at Galveston. United States)

Abstract

This study uses the Cox Proportional Hazards Model, examining the operating and financial characteristics of banks as well as market and economic conditions, to demonstrate what caused US bank failures. Consistent effects indicate US banks were more likely to survive when having higher capital, loan to assets, short term debt securities, and return on assets. The failure rate was greater when their loan loss allowances and past due accounts were high. The results of this research will help banks, central banks, governments, and regulators to forecast which banks are in financial trouble and understand why. They can then take effective action to shore up the financial strength of the affected banks as well as the financial system. Classification JEL:

Suggested Citation

  • Raymond A. K. Cox & Randall K. Kimmel & Grace W.Y. Wang, 2017. "Proportional Hazards Model of Bank Failure: Evidence from USA," Journal of Economic and Financial Studies (JEFS), LAR Center Press, vol. 5(3), pages 35-45, June.
    • Handle: RePEc:lrc:lareco:v:5:y:2017:i:3:p:35-45
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    References listed on IDEAS

    as
    1. Sinkey, Joseph F, Jr, 1975. "A Multivariate Statistical Analysis of the Characteristics of Problem Banks," Journal of Finance, American Finance Association, vol. 30(1), pages 21-36, March.
    2. Rebel Cole & Lawrence White, 2012. "Déjà Vu All Over Again: The Causes of U.S. Commercial Bank Failures This Time Around," Journal of Financial Services Research, Springer;Western Finance Association, vol. 42(1), pages 5-29, October.
    3. Raymond A. K. Cox & Randall K. Kimmel & Grace W. Y. Wang, 2016. "Equity Capital as a Safety Cushion in the US Banking Sector," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(9), pages 50-68, September.
    4. Grace W.Y. Wang & Raymond A.K. Cox, 2013. "Risk taking by US banks led to their failures," International Journal of Financial Services Management, Inderscience Enterprises Ltd, vol. 6(1), pages 39-59.
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    Cited by:

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