Working Paper 09 - 04 R September 2009 Financial Crises and Bank Failures : A Review of Prediction Methods

Working papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded offi cial Federal Reserve Bank of Cleveland publications. The views stated herein are those of the authors and are not necessarily those of the Federal Reserve Bank of Cleveland or of the Board of Governors of the Federal Reserve System. In this article we provide a summary of empirical results obtained in several economics and operations research papers that attempt to explain, predict, or suggest remedies for fi nancial crises or banking defaults; we also outline the methodolo-gies used in them. We analyze fi nancial and economic circumstances associated with the U.S. subprime mortgage crisis and the global fi nancial turmoil that has led to severe crises in many countries. The intent of this article is to promote future empirical research for preventing bank failures and fi nancial crises.