Uncertain times and early predictions of bank failure
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
Search for more papers by this authorCorresponding 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
Search for more papers by this authorAbstract
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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