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Working Paper 1995-013B

"Why Do Banks Disappear: The Determinants of U.S. Bank Failures and Acquisitions"
by David C. Wheelock, and Paul Wilson

This paper examines the determinants of individual bank failures and acquisitions in the United States during 1984-1993. We use bank-specific information suggested by examiner CAMEL-rating categories to estimate competing-risks hazard models with time-varying covariates. We focus especially on the role of management quality, as reflected in alternative measures of x-efficiency and find the inefficiency increases the risk of failure, while reducing the probability of a bank's being acquired. Finally, we show that the closer to insolvency a bank is, as reflected by a low equity-to-assets ratio, the more likely its acquisition.

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Category > Banking
Author > David C. Wheelock
Research Papers and Publications: JEL Code > G34