PREDICTING BANK FAILURES: THE NECCESITY OF BANK CAPITAL REQUIREMENTS

摘要

This study investigates the prediction of bank failure using observable variables from readily available published sources. Bank failure in a local economy can reduce liquidity, affecting available funds for local business and individuals. This study compares the ratios for the forty-two banks that failed in the years 2013-2016 versus a random sample of "troubled" banks. Results indicate that capital ratios along with loan risk and loan loss reserves were the most successful in predicting bank failure. This result supports the higher level of capital requirements and the capital ratio reporting requirements.