Authors: Sergio Correia, Stephan Luck, and Emil Verner
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Staff Reports
Failing Banks
Number 1117
September 2024 Revised June 2025
September 2024 Revised June 2025
JEL classification: G01, G21, N20, N24
Why do banks fail? We create a panel covering most commercial banks from 1863 through 2024 to study the history of failing banks in the United States. Failing banks are characterized by rising asset losses, deteriorating solvency, and an increasing reliance on expensive noncore funding. These commonalities imply that bank failures are highly predictable using simple accounting metrics from publicly available financial statements. Failures with runs were common before deposit insurance, but these failures are strongly related to weak fundamentals, casting doubt on the importance of non-fundamental runs. Furthermore, low recovery rates on failed banks’ assets suggest that most failed banks were fundamentally insolvent, barring strong assumptions about the value destruction of receiverships. Altogether, our evidence suggests that the primary cause of bank failures and banking crises is almost always and everywhere a deterioration of bank fundamentals.
Author Disclosure Statement(s)
Sergio Correia
The author declares that (s)he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Stephan Luck
I declare that I have no relevant or material financial interests that relate to the research described in this paper (Failing Banks). Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Emil Verner
The author declares that he has no relevant or material financial interests that relate to the research described in this paper.
The author declares that (s)he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Stephan Luck
I declare that I have no relevant or material financial interests that relate to the research described in this paper (Failing Banks). Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Emil Verner
The author declares that he has no relevant or material financial interests that relate to the research described in this paper.
Suggested Citation:
Correia, Sergio, Stephan Luck, and Emil Verner. 2024. “Failing Banks.” Federal Reserve Bank of New York Staff Reports, no. 1117, September. https://doi.org/10.59576/sr.1117
Correia, Sergio, Stephan Luck, and Emil Verner. 2024. “Failing Banks.” Federal Reserve Bank of New York Staff Reports, no. 1117, September. https://doi.org/10.59576/sr.1117
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