Bank Failures as Poisson Variates: A Reappraisal

Abstract

This paper uses a model developed in Davutyan (1989) to appraise alternative possible causes of bank failures from 1947 to 1991, with emphasis on the possibility of structural shifts in these causal relationships as a consequence of deregulation, particularly the Depository Institutions Deregulation and Monetary Control Act (DIDMCA) of 1980. Various factors that may bear upon bank failure are discussed in Section 2, and their effects are estimated in Section ₃. Because of the discrete nature of the data, which makes Normal or Gaussian estimation inappropriate, estimates by two additional methods are reported: Poisson and a compound Poisson approach called NegBin. Tests for structural change are reported in Sections ₄ and ₅ and the principal findings are summarized in Section 6.