Determinants of bank failures in the US revisited

Abstract

This study investigates factors influencing the bank failure rate in the United States over the period 1970 to 2007. The bank failure rate was found to be an increasing function of the unemployment rate, the average cost of funds, volatility of the S&P 500 Stock Index, and charge-offs as a percentage of outstanding loans and a decreasing function of the mortgage rate on new 30-year fixed-rate mortgages. The evidence implies also that the Federal Deposit Insurance Corporation Improvement Act acted to reduce bank failures whereas the Riegle–Neal Interstate Banking Act of 1994 may inadvertently have (by increasing competition and/or increasing costs through branch bank expansion) induced increased bank failures.