Determinants of Ex-Ante Banking System Distress: A Macro-Micro Empirical Exploration of Some Recent Episodes
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Summary:
This paper empirically analyzes the contribution of microeconomic and macroeconomic factors in five recent episodes of banking system problems in the U.S. Southwest (1986–92), Northeast (1991–92), and California (1992–93); Mexico (1994–95); and Colombia (1982–87). The paper finds that a low capital equity and reserve coverage of problem loans ratio is a leading indicator of bank distress, signaling a high likelihood of near-term failure. Distress is shown to be a function of the same fundamental macro-micro sources of risk that determine bank failures. Focusing on distress has the advantage that the fragility of the banking system can be assessed before a crisis actually occurs.
Series:
Working Paper No. 1999/033
Subject:
Banking Commercial banks Credit risk Distressed institutions Financial institutions Financial regulation and supervision Loans Nonperforming loans
English
Publication Date:
March 1, 1999
ISBN/ISSN:
9781451845167/1018-5941
Stock No:
WPIEA0331999
Pages:
114
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