TRG Finance/ Financial Inclusion presented by Djamiou Ohounko

Djamiou Ohounko, MBA Student at ASE, presented the Thematic Reading Group in Finance/Financial Inclusion held on Tuesday November 6th. The paper presented to the audience for analysis was titled “Determinants of Bank Failures in the US Revisited” by Richard J. Cebula (2010).

Djamiou summarized the interest of the paper which was to “identify key determinants on bank failures in the United States for the period 1970 to 2007” as well to investigate the impacts of three federal banking statutes: The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (RNIBA), and the Gramm-Leach-Bliley Act (GLBAct) of 1999. Following some previous related studies, the author adopted an eclectic model that led him to the conclusion that bank failure rates during the period of study was an increasing function of the unemployment rate, the average cost of funds, volatility of the S&P 500 Stock Index, and charge-offs as a percentage of outstanding loans. He noted, however, that it was a decreasing function of the mortgage rate on new 30-year fixed rate mortgages.

The participants enjoyed discussing the paper during the Q&A, and the interactive debate questioned the pertinence, the limitations, and the possible expansion of the study, particularly in the African context. In particular, the fact that there are other variables that could be taken into account to explain the failure of US’ banks like management quality and insolvency was raised. Currently there is no comparison between the data of US’ banks failure and those of other regions in the world.