Bank Defaults - Not as Rare as Expected and Quite Possible to Document

Abstract

This paper uses historical default data for banks in the United States, United Kingdom, Denmark, Finland, Norway and Sweden to shed new light on the frequency of bank defaults. Data shows that bank defaults in Europe have a markedly lower frequency than in the United States. Also bank defaults in Europe almost exclusively happens in conjunction with financial crises, while bank defaults in the US are annual events. Further more, the majority of bank defaults in all countries examined refer to small institutions and not to systemically important banks. Thus size relative to the domestic market is an important differentiator to bank default probability.