Explaining Recent Connecticut Bank Failures: Did Managerial Inefficiency Play a Role

Significant numbers of U.S. commercial bank failures in the late 1980s and early 1990s raise important questions about bank performance. We develop a failure-prediction model for Connecticut banks to examine events in 1991 and 1992. We adopt data envelopment analysis to derive measures of managerial efficiency. Our findings can be briefly stated. Managerial inefficiency does not provide significant information to explain Connecticut bank failures. Portfolio variables do generally contain significant information. Mailing Address: Stephen M. Miller University of Connecticut Department of Economics Storrs, CT 06269-1063 USA * Professor and Head of Economics, and Assistant Professor of Economics, respectively. We acknowledge the assistance of the University of Connecticut Research Foundation, which provided a research grant to purchase the data tapes. Finally, we also acknowledge the support of the University of Connecticut Computer Center.