Munich Personal RePEc Archive

Determinants of financial distress in u.s. large bank holding companies

zhang, zhichao and Xie, Li and lu, xiangyun and zhang, zhuang (2014): Determinants of financial distress in u.s. large bank holding companies.

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Abstract

With a sample of 354 U.S. large bank holding companies, this paper investigates the determination of financial distress in financial institutions. We find that: (1) the house price index is consistently significant and positively associated with the Distance-to-Default (DD) measure in the U.S. banking market; (2) all the three major banking risk characteristics i.e. non-performing loans, short-term wholesale funding, and the credit-risk indicator are reliable factors behind DD determination; (3) for the two alternative measures of BHC activity diversification, non-interest income is positively related with BHCs’ DD whereas off-balance-sheet activity is negatively associated to the financial distress measure; and (4) Relevant capital requirements indicators including Tier I Risk-Based Capital Ratio, Total Risk-Based Capital Ratio, Tier I Leverage Ratio should be taken in regulatory assessment of BHCs’ financial distress.

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