What Causes Bank Failures During the Recent Economic Recession?

More than 400 banks failed during the recent financial crisis. Bank failures have a significant impact on the financial system and the economy as a whole. It is important to identify factors that may contribute to bank failures so that banks can take measures to reduce their default risk. This paper examines how bank specific characteristics and economic conditions affect bank failures during the recent financial crisis. We employ the logistic regression model to study this issue using the U. S. commercial bank data over the sample period 2007-2012. We find that the ratio of the loan and leases to total assets, real estate loan ratio, and non-performing loan ratio have a positive influence on the bank failures while capital adequacy ratios, return on assets, liquid ratio, and GDP growth rate have a negative impact on bank failures