Journal of Financial Services Research

, Volume 42, Issue 1–2, pp 5–29

Déjà Vu All Over Again: The Causes of U.S. Commercial Bank Failures This Time Around

Article

Abstract

In this study, we analyze why commercial banks failed during the recent financial crisis. We find that traditional proxies for the CAMELS components, as well as measures of commercial real estate investments, do an excellent job in explaining the failures of banks that were closed during 2009, just as they did in the previous banking crisis of 1985–1992. Surprisingly, we do not find that residential mortgage-backed securities played a significant role in determining which banks failed and which banks survived. Our results offer support for the CAMELS approach to judging the safety and soundness of commercial banks, but call, into serious question the current system of regulatory risk weights and concentration limits on commercial real estate loans.

Keywords

Bank Bank failure CAMELS Commercial real estate FDIC Financial crisis Mortgage-backed security Risk-based capital Risk weights 

JEL

G17 G21 G28 

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Copyright information

© Springer Science+Business Media, LLC 2011

Authors and Affiliations

  1. 1.Kellstadt College of CommerceDePaul UniversityChicagoUSA
  2. 2.Stern School of BusinessNew York UniversityNew YorkUSA

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