Monitoring Banking Sector Fragility: A Multivariate Logit Approach
October 1, 1999
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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
Pages:
27
Volume:
1999
DOI:
Issue:
147
Series:
Working Paper No. 1999/147
Stock No:
WPIEA1471999
ISBN:
9781451856712
ISSN:
1018-5941
