Determinants of financial distress in large financial institutions: Evidence from U.S. bank holding companies

Zhichao Zhang, Li Xie, Xiangyun Lu, Zhuang Zhang

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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.

Original languageEnglish
Pages (from-to)250-267
Number of pages18
JournalContemporary Economic Policy
Volume34
Issue number2
DOIs
Publication statusPublished - 1 Apr 2016
Externally publishedYes

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Zhang, Z., Xie, L., Lu, X., & Zhang, Z. (2016). Determinants of financial distress in large financial institutions: Evidence from U.S. bank holding companies. Contemporary Economic Policy, 34(2), 250-267. https://doi.org/10.1111/coep.12105