Proportional Hazards Model of Bank Failure: Evidence from USA

Raymond A. K. Cox, Randall K. Kimmel, Grace W.Y. Wang

Abstract


This study uses the Cox Proportional Hazards Model, examining the operating and financial characteristics of banks as well as market and economic conditions, to demonstrate what caused US bank failures. Consistent effects indicate US banks were more likely to survive when having higher capital, loan to assets, short term debt securities, and return on assets. The failure rate was greater when their loan loss allowances and past due accounts were high. The results of this research will help banks, central banks, governments, and regulators to forecast which banks are in financial trouble and understand why. They can then take effective action to shore up the financial strength of the affected banks as well as the financial system.

Keywords


Bank Failure, Early Warning system, Proportional Hazard Model

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References


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DOI: http://dx.doi.org/10.18533/jefs.v5i3.290

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