Thesis_gd_final_vers.. - Vernimmen

deposits in denomination higher than $100,000 only until the first quarter of 2006 included, and
data on deposits higher than $250,000 since then. We are forced to use the RCON data series for
our detailed split of loans secured by real estate because the RCFD data series is available only
since mid-2008. We keep the RCON data series during the whole period for consistency reasons.
We add to the items list (Table 3) the reporting period for each item. It shows that MBS held
either in securities or in trading have stopped being reported at the bank company level after Q1
2009. Moreover, our data on exposure to securitization vehicles through off-balance sheet
commitments such as recourse or liquidity enhancement were reported only from Q2 2001 on.
After a quick check to assess the extent of missing data in the database, we find that 383 banks
have no information over the total period for the four main items extracted from the income
statement. We decide to drop these banks observations from the database. We list these banks in
Appendix one (Table A1). From the name of these entities and investigations on a random sample
it seems clear that they are branches or subsidiaries of large foreign banks and most of them
should have a status of Agreement Corporation, which allow them to engage in international
banking. Consequently these banks are out of the scope of this study. We also dropped 94 banks
that have missing information on our first level of loan categories for all quarters. After a check, it
appears that these institutions are mostly subsidiaries conducting the international banking
activities of US banks or holding companies of international subsidiaries of US banks. We provide
a complete list of these banks in Appendix 1 (Table A2).
b) Variables and hypotheses
We construct financial variables encompassing traditional bank failure variables that have been
found to be statistically and economically significant on bank failure prediction 13 . To these we add
specific variables to test our hypothesis in the context of bank failures during the current crisis
(Table 4). We divide the variables into the following categories: profitability, scope and business
model, asset allocation and asset quality, capital adequacy and liquidity. Given that all our variables
are based on accounting ratios, we want to avoid the potential effects of outliers on our results.
Consequently, we winsorize all our variables at the one-percent level in both tails of their
distribution.
We measure bank profitability with three variables:
- the ratio of net income against the total assets (NET_INC), which is an after tax return on
assets. A high profitability is likely to be associated with a low failure risk. We expect failed
banks to be significantly less profitable than safe ones, at least a couple of quarters before
13 Cole and Wu (2009), Wheeloc and Wilson (2000), King, Nuxoll and Yeager (2006)
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