The aim of this study is first to analyze models of bankruptcy prediction and to examine whether the financial crisis that we are being through could be forecasted it. Banking crises have developed many times throughout history, but in the middle of 2007 the global economy faced the worst financial crisis ever, which its consequences affect all the industries all over the world until now. This paper deals with the banking sector only. For that reason, at the first part, we present the US banking regulation system and an outline of Basel 1 and Basel 2. Afterwards, we examine the basic bankruptcy prediction models introduced by Beaver (1966), Altman (1968), Ohlson (1980), Zwijewski (1984) and Shumway (2001) and also the CAMEL framework. The sample of the empirical part consists of US bankrupt and nonbankrupt banks and their financial ratios and data are used into six logit models in order to examine which one of them could forecast better any possible future crash of the banking system. The results of the study show that bank default can be explained by profitability and leverage ratios and we concluded that the model that describes better bankruptcy includes the following variables: sales, retained earnings/total assets, EBIT/total assets, sales/total assets, total debt/total equity and auditors. The findings might be interesting and useful to several future researches and might function as via prevention and protection for the banking system.
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