TAILIEUCHUNG - Explaining Bank Failures in the United States: The Role of Self-Fulfilling Prophecies, Systemic Risk, Banking Regulation, and Contagion

Jurisdictional Uncertainty. This is a vaguely defined term that refers to weaknesses in property rights and contract-enforcing institutions. The term was coined by Arida, Bacha, and Lara-Resende (2004) who describe it as some form of anticreditor bias, the risk of changing the value of contracts before or at the moment of their execution, and the risk of an unfavorable interpretation of contracts in case of a court ruling. The problem with this hypothesis is that many other emerging market countries do not have stronger institutional frameworks for the defense of property rights and contract enforcement than Brazil and yet have. | 1 maananlll STUDY CENTER GERZENSEE Explaining Bank Failures in the United States The Role of Self-Fulfilling Prophecies Systemic Risk Banking Regulation and Contagion Nils Herger Working Paper This discussion paper series represents research work-in-progress and is distributed with the intention to foster discussion. The views herein solely represent those of the authors. No research paper in this series implies agreement by the Study Center Gerzensee and the Swiss National Bank nor does it imply the policy views nor potential policy of those institutions. Explaining Bank Failures in the United States The Role of Self-Fulfilling Prophecies Systemic Risk Banking Regulation and Contagion Nils Herger Study Center Gerzenseey November 2008 Abstract Using count data on the number of bank failures in US states during the 1960 to 2006 period this paper endeavors to establish how far sources of economic risk recessions high interest rates inflation or differences in solvency and branching regulation can explain some of the fragility in banking. Assuming that variables are predetermined lagged values provide instruments to absorb potential endogeneity between the number of bank failures and economic and regulatory conditions. Results suggest that bank failures are not merely self-fulfilling prophecies but relate systematically to inflation as well as to policy changes in banking regulation. Furthermore in terms of statistical and economic significance the distribution and development of bankruptcies across US states depends crucially on past bank failures suggesting that contagion provides an important channel through which banking crises emerge. JEL classification G21 G28 Keywords bank failures banking crisis banking regulation count data 1 Introduction By accepting deposits that are withdrawable on demand and issuing loans that will mature at a specific future date banks 1 constitute the predominant financial institution for allocating funds across a broad range of

• Ngân hàng - Tín dụng
• Relation to Cardiovascular
• Venous Thromboembolism
• Environmental Electromagnetic
• Female Fertility
• Marker CA 125
• Spontaneous Abortion
• Pathogenesis of Thrombosis
• Microparticles
• Haemostasis and Venous