How Well Do Aggregate Bank Ratios Identify Banking Problems?

Author/Editor:

Martin Cihak ; Klaus Schaeck

Publication Date:

December 1, 2007

Electronic Access:

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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.

Series:

Working Paper No. 2007/275

Subject:

Banking Banking crises Commercial banks Financial soundness indicators Nonperforming loans

English

Publication Date:

December 1, 2007

ISBN/ISSN:

9781451868388/1018-5941

Stock No:

WPIEA2007275

Pages:

40

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