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The Losses Realized in Bank Failures

Authors

  • CHRISTOPHER JAMES

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    • University of Florida. This paper was written while I was a visiting scholar at the FDIC. Thanks to John Bovenzi and Art Murton for making the data available to me and for helpful comments and discussions. Thanks also to Mark Flannery, Alan Hess, George Kaufman, Michael Keeley, Edward Kane, and Peggy Wier, the referees and to the editors Steve Buser and René Stulz.

ABSTRACT

This paper examines the losses realized in bank failures. Losses are measured as the difference between the book value of assets and the recovery value net of the direct expenses associated with the failure. I find the loss on assets is substantial, averaging 30 percent of the failed bank's assets. Direct expenses associated with bank closures average 10 percent of assets. An empirical analysis of the determinants of these losses reveals a significant difference in the value of assets retained by the FDIC and similar assets assumed by acquiring banks.

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