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DETERMINANTS OF FINANCIAL DISTRESS IN LARGE FINANCIAL INSTITUTIONS: EVIDENCE FROM U.S. BANK HOLDING COMPANIES
Author(s) -
Zhang Zhichao,
Xie Li,
Lu Xiangyun,
Zhang Zhuang
Publication year - 2016
Publication title -
contemporary economic policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.454
H-Index - 49
eISSN - 1465-7287
pISSN - 1074-3529
DOI - 10.1111/coep.12105
Subject(s) - financial distress , loan , financial system , business , financial ratio , finance , financial crisis , capital requirement , index (typography) , economics , monetary economics , macroeconomics , world wide web , incentive , computer science , microeconomics
We investigate determinants of financial distress in large financial institutions based on the Distance‐to‐Default and Z ‐Scores measures. Using data of U.S. bank holding companies ( BHCs ), we find that the housing price index is a consistently significant factor across all BHCs and the non‐performing loan ratio is the most powerful indicator for financial distress. Short‐term wholesale funding is also a reliable default risk indicator. We additionally find that all the three regulatory capital requirements are very important for controlling default risk, particularly in the post‐crisis period. ( JEL C53, G14, G21, G28)