Monitoring Banking Sector Fragility: A Multivariate Logit Approach

By Enrica Detragiache, Asli Demirgüç-Kunt

October 1, 1999

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Enrica Detragiache, and Asli Demirgüç-Kunt. Monitoring Banking Sector Fragility: A Multivariate Logit Approach, (USA: International Monetary Fund, 1999) accessed October 6, 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 explores how a multivariate logit empirical model of banking crisis probabilities can be used to monitor banking sector fragility. The proposed approach relies on readily available data, and the fragility assessment has a clear interpretation based on in-sample statistics. The model has better in-sample performance than currently available alternatives, and the monitoring system can be tailored to fit the preferences of the decision maker regarding type I and type II errors. The framework can be useful as a preliminary screen to economize on precautionary costs.

Subject: Banking crises, Commercial banks, Financial crises, Financial institutions, Financial services, Real interest rates, Systemic crises

Keywords: Bank fragility, Banking crises, Banking crises probability, Banking crisis, Commercial banks, Crisis probability, East Asia, Forecasted probability, Monitoring, Out-of-sample probability forecast, Real interest rates, Sample estimation result, Systemic crises, Type I error, WP

Publication Details

Pages:

27
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1999/147
Stock No:

WPIEA1471999
ISBN:

9781451856712
ISSN:

1018-5941

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