The Determinants of UK Credit Union Failure
36 Pages Posted: 25 Apr 2017
Date Written: April 21, 2017
Abstract
This paper examines the determinants of credit union failure in the United Kingdom. Using regulatory data on credit unions, we estimate several discrete-time logit models and evaluate their predictive ability at one, two and three-year time horizons. We find that a small set of financial attributes related to capital adequacy, asset quality, earnings performance and liquidity is useful for early identification of troubled credit unions. Both in and out-of-sample results indicate that this parsimonious set of firm-level characteristics, augmented with national and regional unemployment rates, reliably identifies failures while keeping false alarm rates at modest levels. The results provide support for establishing early-warning criteria for supervisory use in monitoring credit unions.
Keywords: Credit Unions; Failure; Early Warning; Logit; Policymaker Loss Function
JEL Classification: G21; G28; G38
Suggested Citation: Suggested Citation