Credit Constraints and Bank Failures: A Macroprudential Perspective on the U.S. Commercial Banking Sector

We examine the impact of economy wide credit tightening on bank failures and investigate relationship between tighter monetary policy while accounting for balance sheet variables. Using a sample U.S. banks from 1984 to 2020, we find following: i) increases in corporate spreads lead significant increase aggregate failures; ii) lower return equity higher allowances loan losses are associated with incidence iii) no robust evidence suggesting that drives failures. Finally, show failures, contraction spreads, profitability, stock market returns contribute economic growth, highlighting interconnectedness banking, markets, availability, macro-economy. These results may have potential macro-prudential implications.