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

By Robert Billings, Brenda Gonzalez-Hermosillo, Ceyla Pazarbasioglu

December 1, 1996

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Robert Billings, Brenda Gonzalez-Hermosillo, and Ceyla Pazarbasioglu. Banking System Fragility: Likelihood Versus Timing of Failure: An Application to the Mexican Financial Crisis, (USA: International Monetary Fund, 1996) accessed September 20, 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

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.

Subject: Banking, Commercial banks, Distressed institutions, Financial crises, Financial institutions, Loans, Nonperforming loans

Keywords: Bank, Bank failure, Bank fragility, Banking sector, Banking sector fragility, Banking sector variable, Commercial banks, Cost parameter, Distressed institutions, Intervened bank, Loan, Loans, Nonperforming loans, Problem bank, WP

Publication Details

Pages:

26
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1996/142
Stock No:

WPIEA1421996
ISBN:

9781451927535
ISSN:

1018-5941

Notes

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

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