Showing papers by "Federal Reserve Bank of Dallas published in 1995"

Separating the likelihood and timing of bank failure

Abstract: We use a split-population survival-time model to separate the determinants of bank failure from the factors influencing the survival time of failing banks. Basic indicators of a bank's condition, such as capital, troubled assets, and net income, are important in explaining the timing of bank failure. However, many of the other variables typically included in bank failure models, such as measures of bank liquidity, are not associated with the time to failure. The results also suggest that the closure of large banks is not delayed relative to the closure of small banks.

A CAMEL rating's shelf life

Abstract: How quickly do the CAMEL ratings regulators assign to banks during on-site examinations become "stale"? One measure of the information content of CAMEL ratings is their ability to discriminate between banks that will fail and those that will survive. To assess the accuracy of CAMEL ratings in predicting failure, Rebel Cole and Jeffery Gunther use as a benchmark an offsite monitoring system based on publicly available accounting data. Their findings suggest that, if a bank has not been examined for more than two quarters, off-site monitoring systems usually provide a more accurate indication of survivability than its CAMEL rating. The lower predictive accuracy for CAMEL ratings “older” than two quarters causes the overall accuracy of CAMEL ratings to fall substantially below that of off-site monitoring systems. The higher predictive accuracy of off-site systems derives from both their timeliness—an updated off-site rating is available for every bank in every quarter—and the accuracy of the financial data on which they are based. Cole and Gunther conclude that off-site monitoring systems should continue to play a prominent role in the supervisory process, as a complement to on-site examinations.

The Use of Replacement Workers in Union Contract Negotiations: The U.S. Experience, 1980-1989

Abstract: It is argued in many circles that a structural change occurred in U.S. collective bargaining in the 1980s. We investigate the extent to which the hiring of replacement workers can account for this change. For a sample of over 300 major strikes since 1980, we estimate the likelihood of replacements being hired. We find that the risk of replacement declines during tight labor markets, and is lower for bargaining units with more experienced workers. We use the predicted replacement risk as an explanatory variable in a model of the union's choice between the strike and holdout threat. We find that strike usage decreases significantly as the predicted replacement risk increases. We estimate that a ban on the use of replacement workers would have increased strike incidence from 1982-1989 by 3 percentage points, a 30 percent increase.

FIMS: A New Financial Institutions Monitoring System for Banking Organizations

Abstract: One of the primary responsibilities of banking regulatory agencies is to minimize the financial loss to the bank to Bank Insurance Fund that results from the failure of insured depository institutions. To discharge this responsibility, bank regulators evaluate the financial performance and condition of depository institutions and initiate prompt corrective actions when they find signs of distress. In evaluation, regulators use a combination of on-site examinations and off-site monitoring systems. In 1993, the Federal Reserve instituted the Financial Institutions Monitoring System ("FIMS," also known as "SEER," or System for Estimating Examination Ratings), which is significantly more accurate that previous off-site systems in identifying financially trouble banking institutions. This article gives the background of FIMS, describes the new system, and explained how it improves on previous systems.

Bank Credit and Economic Activity: Evidence from the Texas Banking Decline

Abstract: In the latter half of the 1980s, banking difficulties were concentrated in Texas. Because of the magnitude of these financial difficulties, interest has focused on whether an alleged inability or unwillingness of Texas banks to extend loans hampered economic growth in the state. Using various measures of banking-sector activity and economic activity in Texas over the period 1976:I-1990:IV, a structural VAR model of the Texas economy is estimated. Variance decompositions measure the interdependence of the banking and real sectors of the economy. Our results indicate a strong effect from the real sector to the financial sector. We find little evidence, though, that the deterioration observed in the Texas banking sector contributed to reduced economic growth.