Forecasting Bank Failure: Base Learners, Ensembles and Hybrid Ensembles

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The prediction of bankruptcy for financial companies, especially banks, has been extensively researched area and creditors, auditors, stockholders and senior managers are all interested in bank bankruptcy prediction. In this paper, three common machine learning models namely Logistic, J48 and Voted Perceptron are used as the base learners. In addition, an attribute-base ensemble learning method namely Random Subspaces and two instance-base ensemble learning methods namely Bagging and Multi-Boosting are employed to enhance the prediction accuracy of conventional machine learning models for bank failure prediction. The models are grouped in the following families of approaches: (i) conventional machine learning models, (ii) ensemble learning models and (iii) hybrid ensemble learning models. Experimental results indicate a clear outperformance of hybrid ensemble machine learning models over conventional base and ensemble models. These results indicate that hybrid ensemble learning models can be used as a reliable predicting model for bank failures.