Banking System Fragility: Likelihood Versus Timing of Failure: An Application to the Mexican Financial Crisis

Author/Editor:

Robert Billings ; Brenda Gonzalez-Hermosillo ; Ceyla Pazarbasioglu

Publication Date:

December 1, 1996

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper tests empirically the proposition that bank fragility is determined by bank-specific factors, macroeconomic conditions and potential contagion effects. The methodology allows for the variables that determine bank failure to differ from those that influence banks’ time to failure (or survival rate). Based on the indicators of fragility of individual banks, we construct an index of fragility for the banking system. The framework is applied to the Mexican financial crisis beginning in 1994. In the case of Mexico, bank-specific variables as well as contagion effects explain the likelihood of bank failure, while macroeconomic variables largely determine the timing of failure.

Series:

Working Paper No. 1996/142

Subject:

Banking Commercial banks Distressed institutions Financial crises Financial institutions Loans Nonperforming loans

Notes:

See also Staff Papers, Vol. 44, No. 3, September 1997, entitled "Determinants of Banking System Fragility: A Case Study of Mexico."

English

Publication Date:

December 1, 1996

ISBN/ISSN:

9781451927535/1018-5941

Stock No:

WPIEA1421996

Pages:

26

Please address any questions about this title to publications@imf.org