The role of capital in bank failures across EU-15 countries: backward LR approach
Resolving the puzzle which financial indicators persistently indicate severe disruptions in the business of banking, is of the utmost importance for prudential authorities. Thus, the intent of this paper is to outline microeconomic determinants of bankruptcies within the banking sectors of the EU-15...
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| Format: | Article |
| Language: | English |
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Croatian Operational Research Society
2021-01-01
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| Series: | Croatian Operational Research Review |
| Subjects: | |
| Online Access: | https://hrcak.srce.hr/file/388973 |
| _version_ | 1797206852109336576 |
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| author | Ana Kundid Novokmet |
| author_facet | Ana Kundid Novokmet |
| author_sort | Ana Kundid Novokmet |
| collection | DOAJ |
| description | Resolving the puzzle which financial indicators persistently indicate severe disruptions in the business of banking, is of the utmost importance for prudential authorities. Thus, the intent of this paper is to outline microeconomic determinants of bankruptcies within the banking sectors of the EU-15 countries and to clarify the role of bank capital in it. Namely, the bank capital regulation is designed as both, ex-ante (bankruptcy prevention) and ex-post (bankruptcy costs reducer) regulatory instrument. Backward stepwise logistic regression was applied on the Bankscope data sample of around 60 commercial banks in the period that preceded the global financial crisis. Estimations were obtained for the year in which a certain bank bankrupted as well as for each year over the five-year period prior to the bankruptcy. Research findings confirm that a number of financial indicators, such as asset quality and liquidity indicators could serve as early warning signals of bank failures even five years before the bankruptcy. The results for bank capital ratios were non-persistent regarding their sign and significance in the year preceding the bankruptcy and several years prior to bankruptcy. Finally, the most convincing results speak in favor of the too-big-to-fail phenomenon, as bank size explains the most of its survival odds. |
| first_indexed | 2024-04-24T09:13:36Z |
| format | Article |
| id | doaj.art-4246cbedfe5c4c52accf9d357a75cf7b |
| institution | Directory Open Access Journal |
| issn | 1848-0225 1848-9931 |
| language | English |
| last_indexed | 2024-04-24T09:13:36Z |
| publishDate | 2021-01-01 |
| publisher | Croatian Operational Research Society |
| record_format | Article |
| series | Croatian Operational Research Review |
| spelling | doaj.art-4246cbedfe5c4c52accf9d357a75cf7b2024-04-15T17:23:49ZengCroatian Operational Research SocietyCroatian Operational Research Review1848-02251848-99312021-01-0112217518710.17535/crorr.2021.0015The role of capital in bank failures across EU-15 countries: backward LR approachAna Kundid Novokmet0Faculty of Economics, Business and Tourism, University of SplitResolving the puzzle which financial indicators persistently indicate severe disruptions in the business of banking, is of the utmost importance for prudential authorities. Thus, the intent of this paper is to outline microeconomic determinants of bankruptcies within the banking sectors of the EU-15 countries and to clarify the role of bank capital in it. Namely, the bank capital regulation is designed as both, ex-ante (bankruptcy prevention) and ex-post (bankruptcy costs reducer) regulatory instrument. Backward stepwise logistic regression was applied on the Bankscope data sample of around 60 commercial banks in the period that preceded the global financial crisis. Estimations were obtained for the year in which a certain bank bankrupted as well as for each year over the five-year period prior to the bankruptcy. Research findings confirm that a number of financial indicators, such as asset quality and liquidity indicators could serve as early warning signals of bank failures even five years before the bankruptcy. The results for bank capital ratios were non-persistent regarding their sign and significance in the year preceding the bankruptcy and several years prior to bankruptcy. Finally, the most convincing results speak in favor of the too-big-to-fail phenomenon, as bank size explains the most of its survival odds.https://hrcak.srce.hr/file/388973backward stepwise logistic regressionbank failurescapital regulationcommercial banks, EU-15 |
| spellingShingle | Ana Kundid Novokmet The role of capital in bank failures across EU-15 countries: backward LR approach Croatian Operational Research Review backward stepwise logistic regression bank failures capital regulation commercial banks, EU-15 |
| title | The role of capital in bank failures across EU-15 countries: backward LR approach |
| title_full | The role of capital in bank failures across EU-15 countries: backward LR approach |
| title_fullStr | The role of capital in bank failures across EU-15 countries: backward LR approach |
| title_full_unstemmed | The role of capital in bank failures across EU-15 countries: backward LR approach |
| title_short | The role of capital in bank failures across EU-15 countries: backward LR approach |
| title_sort | role of capital in bank failures across eu 15 countries backward lr approach |
| topic | backward stepwise logistic regression bank failures capital regulation commercial banks, EU-15 |
| url | https://hrcak.srce.hr/file/388973 |
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