Estimating Default Frequencies and Macrofinancial Linkages in the Mexican Banking Sector

Author/Editor: Blavy, Rodolphe ; Souto, Marcos
Publication Date: May 01, 2009
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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 credit risk measures we develop in this paper are used to investigate macrofinancial linkages in the Mexican banking system. Domestic and external macro-financial variables are found to be closely associated with banking soundness. At the aggregate level, high external volatility and domestic interest rates are associated with higher expected default probability. Though results vary substantially across individual banks, domestic activity and U.S. growth, and higher asset prices, are generally associated with lower credit risks, while increased volatility worsens credit risks. The expected default probability is also found to be a leading indicator of traditional financial stability indicators.
Series: Working Paper No. 09/109
Subject(s): Bank soundness | Banking sector | Banks | Credit risk | Data analysis | Economic models | Mexico

Author's Keyword(s): banking sector | credit risk | macrofinancial links | Mexico | banking sector soundness
Publication Date: May 01, 2009
Format: Paper
Stock No: WPIEA2009109 Pages: 32
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