Financial Soundness Indicators and Banking Crises

ByMatias Costa Navajas, Aaron Thegeya

December 23, 2013

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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 paper tests the effectiveness of financial soundness indicators (FSIs) as harbingers of banking crises, using multivariate logit models to see whether FSIs, broad macroeconomic indicators, and institutional indicators can indeed predict crisis occurrences. The analysis draws upon a data set of homogeneous indicators comparable across countries over the period 2005 to 2012, leveraging the IMF’s FSI database. Results indicate significant correlation between some FSIs and the occurrence of systemic banking crises, and suggest that some indicators are precursors to the occurrence of banking crises.

Subject: Banking crises, Financial crises, Financial institutions, Financial sector policy and analysis, Financial soundness indicators, National accounts, Nonperforming loans, Personal income

Keywords: banking, banking crises, banking crisis, core FSI indicator, crisis country, Financial soundness indicators, FSI data, Global, macroprudential analysis, Nonperforming loans, NPL ratio, Personal income, return on assets, return on equity, WP

Pages:
38
Volume:
2013
DOI:
https://doi.org/10.5089/9781484327616.001
Issue:
263
Series:
Working Paper No. 2013/263
Stock No:
WPIEA2013263
ISBN:
9781484327616
ISSN:
1018-5941

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