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FDIC Banking Review

Table 3
Failure-Prediction Model, Hypothetical Bank
Scoring Factor Coefficient
(Weight)
(A)
Financial
Ratio
(B)
Scorea
(C)
Intercept 3.91 N/A 3.91
Nonaccrual Loans / Total Assets 35.47 0.002 0.07
Loans Past Due 90+ Days / Total Assets 37.10 0.010 0.37
ORE / Total Assets 30.46 0.015 0.45
Loans Past Due 3089 days / Total Assets 30.45 0.005 0.15
Pretax Net Operating Income / Average Assets 15.17 0.030 0.45
Noncore Funding / Total Assets 5.20 0.120 0.62
Equity & Reserves / Total Assets 21.69 0.130 2.82
Total Score     5.52

Note: This table demonstrates how the results of the failure-prediction model can be used to create an individual expected-failure probability for each institution.

a The raw score is the product of columns A and B. Via the formula in note 7, the total score produces the expected probability of failure (Pr(default)) through the transformation.

The probability of default equals the natural exponent minus 5.52 divided by one plus the natural exponent minus 5.52 equals 0.39 percent.

Last Updated 12/16/2003 Questions, Suggestions & Requests