Bank Failures in Mature Economies

April 2004

This Basel Committee working paper studies bank failures in eight countries: Germany, Japan, Norway, Spain, Sweden, Switzerland, the United Kingdom and the U.S. It examines the reasons for the failures, how the failures were resolved, and what regulatory changes followed from the crisis. A good understanding of the reasons behind bank failures is crucial in developing a regulatory system that reduces the risk of future failures. While the paper focuses on why the banks failed, the other two issues provide interesting additional evidence. The way a crisis is resolved may have been anticipated by market participants and may thus have had an impact on the probability and severity of the crisis. The regulatory changes following a crisis are an indicator of what national authorities perceived as the underlying causes of the problems.

The study is intended to be complementary to other studies. For example, an OECD study examined strategies for resolution of failure in a number of countries - whereas this study will mention how the crisis was resolved but will analyse in detail the underlying causes of failure and also examine changes in the legal and regulatory regimes that resulted from the crisis. The study will also help shed light on the frequency of failure by risk type, the type of shock that precipitated the crisis, and the impact of the event.