Discussion Paper

Why Do Banks Fail? The Predictability of Bank Failures


Abstract: Can bank failures be predicted before they happen? In a previous post, we established three facts about failing banks that indicated that failing banks experience deteriorating fundamentals many years ahead of their failure and across a broad range of institutional settings. In this post, we document that bank failures are remarkably predictable based on simple accounting metrics from publicly available financial statements that measure a bank’s insolvency risk and funding vulnerabilities.

Keywords: bank runs; financial crises; deposit insurance; bank failures;

JEL Classification: G01; G2;

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Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Liberty Street Economics

Publication Date: 2024-11-22

Number: 20241122