The Bank Failure Rate, Economic Conditions and Banking Statutes in the U.S., 1970-2009

Given the significance of bank failures for the economic health and stability of the U.S., it is imperative to have insights into factors that systematically influence bank failures, including major federal government banking statutes that are implemented. Accordingly, this exploratory study investigates factors influencing the bank failure rate in the U.S. over the period 1970 through 2009, with emphasis on two major banking statutes, the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) and the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (RNIBA). After allowing for a variety of economic and financial variables in the U.S. over the study period, the evidence strongly implies also that FDICIA acted to reduce bank failures whereas RNIBA (presumably by increasing competition and/or increasing costs through branch bank expansion) induced a net increase in bank failures in the U.S.