Predicting Bank Failures: Evidence from 2007 to 2010

This paper examines the 225 banks that failed between February 2, 2007, and April 23, 2010, comparing them to a random sample of banks that had not failed as of April 23, 2010. We performed regression and discriminant analysis on quarterly call report data for one year, two years, three years, and four years prior to bank failure to determine whether the failure could have been predicted. Our model is statistically significant at the 1% level and predicts bank failures with 88.2% accuracy one year prior to failure, 78.6% two years prior to failure, 71.4% three years prior to failure, and 66.0% four years prior to failure.