DETERMINANTS OF FINANCIAL DISTRESS IN LARGE FINANCIAL INSTITUTIONS: EVIDENCE FROM U.S. BANK HOLDING COMPANIES | Zendy

Zhang Zhichao | Zendy; Xie Li | Zendy; Lu Xiangyun | Zendy; Zhang Zhuang | Zendy

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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)

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