Abstract
AbstractWe 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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