(Jorge A. Garcia, Miguel Rodriguez, Stephanie Strunc, 1997)
The purpose of this project, is to provide some insight as to why and how banks fail. The analysis encompasses all banks in the United States covering years 1985-1994. During this time span, numerous banks have failed, yet others have had exponential growth and success. It is known today that the major cause of bank failure can be attributed to managerial qualities. The scope of this analysis is to create a best practices profile of the bank performance tiers based on efficiency score rating, and to formulate a model that will aid in ascertaining bank health.
In order to create the benchmarking model, this study will utilize the Data Envelopment Analysis approach. This approach consists of multiple inputs and outputs used to compute a measure of efficiency. This measure of performance allows for further analysis of the bank population as a whole. Once the entire population has been analyzed and the significant factors have been determined inferences can be drawn as to what practices a banking institution could refine to improve their performance rating.
The second aspect of this project is to design a model that can be used to predict bank success or failure based on historical data. This was accomplished by developing a logistic model to fit the historical data which included information about the banks' success or failure.