An Economic Analysis of the Timing and Methods of the Distressed Financial Institutions : A Quantitative Approach for Credit Associations and Credit Cooperatives

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The purpose of this study is to investigate rational timing and methods for resolving distressed financial institutions such as credit associations and credit cooperatives. Data are obtained from 25 distressed credit associations during the period between 1999 to 2002. fiscal year. Multinomial logic analysis and Tobit analysis as well as ordinary least squares method were used. The results suggest that capital adequacy ratio is the main determinant for classifying distressed institutions and bail out institutions as expected. Costs of resolution were affected by capital adequacy ratio and net business profit, but asset size did not matter. The order of resolution by the financial supervisory authorities was rational since financially more serious institutions were resolved earlier.