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Determinants of bank failures in the US revisited

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  • Richard Cebula

Abstract

This study investigates factors influencing the bank failure rate in the United States over the period 1970 to 2007. The bank failure rate was found to be an increasing function of the unemployment rate, the average cost of funds, volatility of the S&P 500 Stock Index, and charge-offs as a percentage of outstanding loans and a decreasing function of the mortgage rate on new 30-year fixed-rate mortgages. The evidence implies also that the Federal Deposit Insurance Corporation Improvement Act acted to reduce bank failures whereas the Riegle-Neal Interstate Banking Act of 1994 may inadvertently have (by increasing competition and/or increasing costs through branch bank expansion) induced increased bank failures.

Suggested Citation

  • Richard Cebula, 2010. "Determinants of bank failures in the US revisited," Applied Economics Letters, Taylor & Francis Journals, vol. 17(13), pages 1313-1317.
    • Handle: RePEc:taf:apeclt:v:17:y:2010:i:13:p:1313-1317
    DOI: 10.1080/00036840902881884
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    1. James R. Barth, 1991. "The Great Savings and Loan Debacle," Books, American Enterprise Institute, number 918256, September.
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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. Evžen Kočenda & Ichiro Iwasaki, 2022. "Bank survival around the world: A meta‐analytic review," Journal of Economic Surveys, Wiley Blackwell, vol. 36(1), pages 108-156, February.
    3. Kočenda, Evžen & Iwasaki, Ichiro, 2020. "Bank survival in Central and Eastern Europe," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 860-878.
    4. Pilar B. Álvarez-Franco & Diego A. Restrepo-Tobón, 2016. "Managerial efficiency and failure of U.S. commercial banks during the 2007-2009 financial crisis: was this time different?," Revista Ecos de Economía, Universidad EAFIT, vol. 20(43), pages 4-22, December.
    5. Lin, Ching-Chung & Yang, Shou-Lin, 2016. "Bank fundamentals, economic conditions, and bank failures in East Asian countries," Economic Modelling, Elsevier, vol. 52(PB), pages 960-966.
    6. Li Xian Liu & Shuangzhe Liu & Milind Sathye, 2021. "Predicting Bank Failures: A Synthesis of Literature and Directions for Future Research," JRFM, MDPI, vol. 14(10), pages 1-24, October.
    7. 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.
    8. Kenji Tsuji, 2015. "Bank Capital Regulation and Soft Budget Constraints," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 21(1), pages 33-40, March.

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