Volume 55, Issue 4 p. 583-601
ORIGINAL ARTICLE

Uncertain times and early predictions of bank failure

Cullen F. Goenner

Corresponding Author

Cullen F. Goenner

Department of Economics and Finance, University of North Dakota, Grand Forks, North Dakota

Correspondence

Cullen F. Goenner, Department of Economics and Finance, University of North Dakota, 293 Centennial Drive, Grand Forks, ND 58202.

Email: cullen.goenner@und.edu

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First published: 04 October 2019
Citations: 4

Abstract

The Great Financial Crisis shows that bank failure in the United States, while rare, is a concern during uncertain times. Interest here is in the ability to predict future failures at the start of a crisis, when the recent past has few events on which to base inferences. I show that policy makers using estimates based on the Savings and Loans crisis would identify in early 2009 that 2.0% of banks were in critical condition and 7.0% were unhealthy. This is comparable to the 1.7% of banks that failed within a year and the 3.9% of banks that would fail during the crisis.

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