DETERMINANTS OF FINANCIAL DISTRESS IN LARGE FINANCIAL INSTITUTIONS: EVIDENCE FROM U.S. BANK HOLDING COMPANIES |
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| Authors: | Zhichao Zhang Li Xie Xiangyun Lu Zhuang Zhang |
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| Institution: | 1. +44 (0)191 334 5440+44 (0)191 334 5201;2. Lecturer, Durham University Business School, University of Durham, Durham, United Kingdom;3. +44 (0)23 8059 3887;4. Research Fellow, Southampton Business School, University of Southampton, Southampton, United Kingdom;5. +44 (0)788 129 9880;6. Ph.D. Candidate, Southampton Business School, University of Southampton, Southampton, United Kingdom;7. +44 (0)787 252 0332;8. Ph.D. Candidate, Durham University Business School, University of Durham, Durham, United Kingdom |
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| Abstract: | We 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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