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Determinants of financial distress in u.s. large bank holding companies

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Listed:
  • zhang, zhichao
  • Xie, Li
  • lu, xiangyun
  • zhang, zhuang

Abstract

With a sample of 354 U.S. large bank holding companies, this paper investigates the determination of financial distress in financial institutions. We find that: (1) the house price index is consistently significant and positively associated with the Distance-to-Default (DD) measure in the U.S. banking market; (2) all the three major banking risk characteristics i.e. non-performing loans, short-term wholesale funding, and the credit-risk indicator are reliable factors behind DD determination; (3) for the two alternative measures of BHC activity diversification, non-interest income is positively related with BHCs’ DD whereas off-balance-sheet activity is negatively associated to the financial distress measure; and (4) Relevant capital requirements indicators including Tier I Risk-Based Capital Ratio, Total Risk-Based Capital Ratio, Tier I Leverage Ratio should be taken in regulatory assessment of BHCs’ financial distress.

Suggested Citation

  • zhang, zhichao & Xie, Li & lu, xiangyun & zhang, zhuang, 2014. "Determinants of financial distress in u.s. large bank holding companies," MPRA Paper 53545, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:53545
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    More about this item

    Keywords

    Bank Holding Company; Distance-to-Default; Financial distress; Bank regulation; Capital requirements; Non-interest income; Off-balance-sheet activities.;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • 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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