The Information Content Of Loan Default Disclosures In The Prediction Of Bank Failure

Abstract

Bank failure prediction remains an important economic issue.  Although prior research investigates bank failure prediction, the opportunity to improve predictions exists.  The purpose of this present study is to investigate the possibility of improving prediction of bank failure by including loan default variables and regional variation in prediction of bank failure. The results of statistical analysis indicate loan default measures contain information content both in their own right and also incrementally above that of traditional CAMEL measures.  Furthermore, statistical analysis utilizing logit regression shows the superiority of bank failure prediction models that include consideration of geographic region.