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- Title
BANK PERFORMANCE PREDICTION DURING THE 'GREAT RECESSION' OF 2008-'09: A PATTERN-RECOGNITION APPROACH.
- Authors
Moore, James
- Abstract
The Great Recession of 2008-'09 witnessed the appearance of U.S. banks on the FDIC's 'problem list', or their actual failure, in numbers unseen since the 1930's. This study examines selected factors internal to the individual bank and their role in the financial soundness and performance of the specific institution through year-end 2009. This paper applies the decision support technology of pattern recognition / data mining to the issue of institutional performance. The conceptual model posits individual bank performance during this period, to be driven by some combination of its own capital adequacy, asset performance, and size. The induced rule structure documents the rank-order importance of: i) bank size, ii) the 'critical mass' of internal strengths versus weaknesses, and iii) the extent of non-performing loans. The operational model correctly classifies 78.8% of all banks in the hold-out sample, and correctly identifies all banks that failed in this data set. The pattern recognition results support the conclusion that the characteristics of the individual bank's capital adequacy and asset portfolio do indeed have a formal impact on institutional performance. Further, it appears that there is a substantive role for the size of the institution to affect just which characteristics are most influential.
- Publication
Academy of Banking Studies Journal, 2011, Vol 10, Issue 2, p87
- ISSN
1939-2230
- Publication type
Academic Journal