How Well Do Aggregate Bank Ratios Identify Banking Problems?

December 1, 2007

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Format: Chicago

Martin Cihak, and Klaus Schaeck. How Well Do Aggregate Bank Ratios Identify Banking Problems?, (USA: International Monetary Fund, 2007) accessed November 21, 2024

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

The paper provides an empirical analysis of aggregate banking system ratios during systemic banking crises. Drawing upon a wide cross-country dataset, we utilize parametric and nonparametric tests to assess the power of these ratios to discriminate between sound and unsound banking systems. We also estimate a duration model to investigate whether the ratios help determine the timing of a banking crisis. Despite some weaknesses in the available data, our findings offer initial evidence that some indicators are precursors for the likelihood and timing of systemic banking problems. Nevertheless, we caution against sole reliance on these indicators and advocate supplementing them with other tools and techniques.

Subject: Banking, Banking crises, Commercial banks, Financial soundness indicators, Nonperforming loans

Keywords: Bank ratio, Banking crisis, Capital adequacy ratio, WP

Publication Details

Pages:

40
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2007/275
Stock No:

WPIEA2007275
ISBN:

9781451868388
ISSN:

1018-5941

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