Estimating Default Frequencies and Macrofinancial Linkages in the Mexican Banking Sector
IMF Working Papers, May 1, 2009
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- Estimating Default Frequencies and Macrofinancial Linkages in the Mexican Banking Sector
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Bibliographic details
- Authors: Marcos R Souto, Rodolphe Blavy
- Published: May 1, 2009
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451872569.001
Summary
- The credit risk measures developed 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.
- 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.
Main findings
- Aggregate associations:
- High external volatility → higher expected default probability.
- Higher domestic interest rates → higher expected default probability.
- Cross-bank heterogeneity:
- Results vary substantially across individual banks.
- Domestic activity and U.S. growth → generally associated with lower credit risks.
- Higher asset prices → generally associated with lower credit risks.
- Increased volatility → worsens credit risks.
- Predictive signal:
- Expected default probability acts as a leading indicator of traditional financial stability indicators.
Subject areas and keywords
- Subject: Bank soundness; Banking; Commercial banks; Credit risk; Financial institutions; Financial regulation and supervision; Financial sector policy and analysis; Financial statements; Nonperforming loans; Public financial management (PFM)
- Keywords: asset; asset volatility; balance sheet datum; bank; Bank soundness; bank vulnerability; banking sector; banking sector soundness; banking system; book value; book value asset volatility; book value risk indicator; Commercial banks; credit risk; credit risk indicator; downside-risk volatility; Financial statements; Global; macrofinancial links; medium-size bank; Mexico; Nonperforming loans; risk measure; WP
Content in this bundle
- _wp09109 - References