| Abstract: |
The ability to predict bank failure has become much more important since the
mortgage foreclosure crisis began in 2007. The model proposed in this study
uses proxies for the regulatory standards embodied in the so-called CAMELS
rating system, as well as several local or national economic variables to
produce a model that is robust enough to forecast bank failure for the entire
commercial bank industry in the United States. This model is able to predict
failure (survival) accurately for commercial banks during both the Savings and
Loan crisis and the mortgage foreclosure crisis. Other important results
include the insignificance of several factors proposed in the literature,
including total assets, real price of energy, currency ratio and the interest
rate spread. |