Déjà Vu All Over Again: The Causes of U.S. Commercial Bank Failures This Time Around

• DOI: 10.1007/s10693-011-0116-9
• Publication Date: 2011-09-13T09:14:08Z
• Authors: Rebel A. Cole; Lawrence J. White
• Keywords: jel:G28; jel:G18; 0502 economics and business; 05 social sciences; jel:G21; bank; bank failure; CAMELS; commercial real estate; construction; FDIC; financial crisis; mortgage-backed security; residential mortgage; residential real estate

In this study, we analyze why commercial banks failed during the recent financial crisis. We find that traditional proxies for the CAMELS components, as well as measures of commercial real estate investments, do an excellent job in explaining the failures of banks that were closed during 2009, just as they did in the previous banking crisis of 1985 – 1992. Surprisingly, we do not find that residential mortgage-backed securities played a significant role in determining which banks failed and which banks survived.