Early Warning Models for Bank Failures: Lessons from the Late 2000s Great Recession

This study developed an early bank failure warning model to identify significant factors that can predict bank failure several months before it actually happens. The important results indicate that increasing delinquencies in consumer and industrial loans, more costly funding arrangements, and asset liquidation to increase liquidity are among the important signals of impending bankruptcy that can be predicated about 3-4 years before the actual bank failure.

Keywords: Agricultural banking, bank failures, in-sample forecasting, Late 2000's Great Recession, out-of-sample forecasting, risk-weighted capital ratio.