Description:
Using the statistical relationships between market values of banks’ assets and their volatilities that are implied from banks’ shareholders’ values of publicly held banks and their financial statement-based variables, which are used to compute banks’ probabilities of default, we conduct out of sample predictions for these two variables for the sample of privately held shinkin banks. We, then, use estimates of these two variables to compute shinkin banks’ probabilities of default. We find that estimated probabilities of default complement the regulatory capital adequacy ratio in identifying banks to fail in the near future