Abstract:In this study, we analyze why commercial banks failed during the recent financial crisis. We find that traditional proxies for the CAMELS components, as well as measures of commercial real estate investments, do an excellent job in explaining the failures of banks that were closed during 2009, just as they did in the previous banking crisis of 1985 -1992. Surprisingly, we do not find that residential mortgage-backed securities played a significant role in determining which banks failed and which banks survived.

The informational opacity of small businesses makes them an interesting area for the study of banks' lending practices and procedures. We use data from a survey of small businesses to analyze the micro level differences in the loan approval processes of large and small banks. We provide evidence that large banks ($1 billion or more in assets) employ standard criteria obtained from financial statements in the loan decision process, whereas small banks rely to a greater extent on information about the character of the borrower. These cookie-cutter and character approaches are compatible with the incentives and environments facing large and small banks.

This feature explores the operation of individual markets. Patterns of behavior This feature explores the operation of individual markets. Patterns of behavior in markets for specifi c goods and services offer lessons about the determinants and in markets for specifi c goods and services offer lessons about the determinants and effects of supply and demand, market structure, strategic behavior, and government effects of supply and demand, market structure, strategic behavior, and government regulation. Suggestions for future columns and comments on past ones should be sent regulation. Suggestions for future columns and comments on past ones should be sent to James R. Hines Jr., c/o to James R. Hines Jr., c/o Journal of Economic Perspectives,

No abstract

This paper reviews the extant empirical studies of financial innovation. Adopting broad criteria, we found just two-dozen studies (24), over half of which (14) had been conducted since 2000. Since some financial innovations are examined by more than one study, only 14 distinct phenomena have been covered. Especially striking is the fact that only two studies are directed at the hypotheses advanced in many broad descriptive articles concerning the environmental conditions (e.g., regulation, taxes, unstable macroeconomic conditions, and ripe technologies) spurring financial innovation. We offer some tentative conjectures as to why empirical studies of financial innovation are comparatively rare. Among our suggested culprits is an absence of accessible data. We urge financial regulators to undertake more surveys of financial innovation and to make the survey data more available to researchers. JEL Classification Numbers: G00, O31