Bank fundamentals, economic conditions, and bank failures in East Asian countries

- This study is to examine the factors for bank failure and survival time.
- Poor bank fundamentals and economic situations increase the probability of failure.
- Favorable macroeconomic performance results in longer survival duration.

In this study, a fixed effect panel logit regression model and a split population survival time model are used to investigate the impact of bank fundamentals and economic conditions on bank failures and survival time from 1999 to 2011 in 11 East Asian markets. The empirical results show that strong bank fundamentals, including capital adequacy, asset quality, management, and profitability and liquidity, as well as desirable economic conditions measured by GDP growth rates, inflation rates, and real interest rates, reduce the failure probability of East Asian banks. In addition, the survival time of banks is primarily described by the measures of economic conditions, and the bank fundamentals exerted marginal effects.