Macroeconomic conditions and bank failure

Qiongbing Wu, R. A. Cole

Research output: Contribution to journalArticlepeer-review

Abstract

Utilizing a simple time-varying hazard model, we incorporate nationwide and state-level economic variables with banking-industry and bank-level data to examine U.S. bank failures during 1977–2019. We find that bank-level financial conditions are more essential in predicting bank failure, although macro factors affect the failure likelihood of vulnerable banks. We also find that banking-industry market variables are significant predictors. Unlike bank systemic funding cost whose predictive power is subsumed in the presence of macroeconomic variables, banking-industry market performance has a significantly independent predictive power on bank failure. This finding is novel to existing literature of bank-failure forecast and has important policy implications.
Original languageEnglish
Pages (from-to)1212-1234
Number of pages23
JournalJournal of Forecasting
Volume43
Issue number5
DOIs
Publication statusPublished - Aug 2024

Bibliographical note

Publisher Copyright:
© 2024 The Authors. Journal of Forecasting published by John Wiley & Sons Ltd.

Open Access - Access Right Statement

© 2024 The Authors. Journal of Forecasting published by John Wiley & Sons Ltd. This is an open access article under the terms of the Creative Commons Attribution-NonCommercial-NoDerivs License (https://creativecommons.org/licenses/by-nc-nd/4.0/), which permits use and distribution in any medium, provided the original work is properly cited, the use is non-commercial and no modifications or adaptations are made.

Keywords

  • bank failure
  • macroeconomic conditions
  • failure prediction
  • hazard model

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