Determinants of bank closures : Do changes of CAMEL variables matter?

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Titel: Determinants of bank closures : Do changes of CAMEL variables matter?
Författare: Mäkinen, Mikko ; Solanko, Laura
Institution: Bank of Finland
Avdelning / Enhet: Institute for Economies in Transition (BOFIT)
Serie: BOFIT Discussion Papers
Serienumber: 16/2017
Utgivningsår: 2017
Utgivningsdatum: 30.10.2017
Publicerad i: Published in Russian Journal of Money and Finance, 77, 2, 2018, 3–21
Sidor: 27
Subject (yso): taseet; indikaattorit; riskit; konkurssi
Nyckelord: Bofit-kokoelma; Venäjä; pankkitoiminta; likviditeetti
JEL: G01; G21; G32; G34
Andra nyckelord: bank closure; bank failure; Russia; CAMEL indicators
Abstrakt: This study examines whether changes in CAMEL variables matter in explaining bank closure. Using a unique set of monthly bank-specific balance sheet data from Russia, we estimate determinants of bank license withdrawals during 2013m7-2017m7. We make two key findings. First, changes in CAMEL indicators are always significantly correlated with probability of bank closure, and the magnitude of parameter estimates decreases with the lag length. Second, while the one-month lagged levels of capital, earnings, and liquidity are significantly associated with the probability of bank closure in the subsequent month, the level of liquidity is the only significant indicator for longer lags. Our key contribution that changes in CAMEL variables matter more than levels is robust to various robustness checks.

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