An empirical analysis of the relationship between multi-bank holding company affiliation and the probability of bank failure.

摘要

During the 1980's, the number of bank failures increased dramatically. Relatively few of these were affiliated with multi-bank holding companies. It is generally assumed that affiliation reduces the probability of failure for these banks. Little attention has been devoted to the occurrence of multi-bank holding company failures, and no research has sought to understand the relationship between multi-bank holding company affiliation and the probability of failure. The thesis is that the probability of failure for banks is significantly affected by the affiliation with a multi-bank holding company. This thesis is examined on both theoretical and empirical grounds. A simple theoretical model demonstrates why it is expected that the probability of failure depends on affiliation. The empirical research measures the extent to which the thesis is borne out among a sample of commercial bank failures by estimating the probability of failure against measures of economic and financial strength for each bank and its holding company. The empirical results are based on a binary limited dependent variable model. The results are clear: affiliate bank failure is directly related to the financial condition of the the bank holding company. The results suggest some interesting regulator implications. If the probability of failure for affiliates is different from the probability of failure for independents, then regulation of the two entities should not be the same.