U.S. Bank Structure, Fragility, Bailout, and Failure during the U.S. Financial Crisis

Abstract

This paper examines the impact of charter type, holding company structure, and measures of bank fragility on the likelihood of a bank bailout or failure during the late 2000s financial crisis. The empirical results indicate that established institutions were more likely to fail if they were relatively large, had relatively low capital ratios, relied more heavily on brokered deposits, and held a relatively large portfolio of real estate loans. In addition, bank failure was more likely for those banks that had a relatively large proportion of nonperforming loans. The variables explaining the likelihood a bank received bailout funds are similar except that holding a large proportion of nonperforming loans reduced the likelihood that a bank received bailout funds. Overall, these results are consistent with regulators providing bailout funds to banks that were more likely to survive the financial crisis, but allowing those banks that were inherently fragile to fail.