Distress in European Banks: An Analysis Basedon a New Dataset
IMF Working Papers, January 1, 2009
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- Distress in European Banks: An Analysis Basedon a New Dataset
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Bibliographic details
- Authors: Tigran Poghosyan, Martin Cihak
- Published: January 1, 2009
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451871562.001
Summary
- The paper presents a unique database of individual bank distress across the European Union from mid-1990s to 2008.
- It analyzes the causes of banking distress in Europe using this data set.
- The study identifies a set of indicators and thresholds that can help to distinguish sound banks from those vulnerable to financial distress.
- Motivation: The global financial crisis highlighted the importance of early identification of weak banks because when problems are identified late, solutions are much more costly.
- Context: Until recently, Europe experienced only a small number of outright bank failures, complicating estimation of early warning models for bank supervision.
Dataset and Scope
- Geographic coverage: European Union.
- Time coverage: mid-1990s to 2008.
- Unit of observation: individual banks (bank-year observation implied).
- Publication type: IMF Working Papers.
- Pages: 39
- Volume: 2009
- Issue: 009
- Series: Working Paper No. 2009/009
- DOI: https://doi.org/10.5089/9781451871562.001
- Stock No: WPIEA2009009
- ISBN: 9781451871562
- ISSN: 1018-5941
- Publication date: January 1, 2009
Key Findings and Analysis
- Early identification of weak banks reduces the cost of solutions; late identification makes solutions much more costly.
- The limited number of outright bank failures in Europe prior to the global financial crisis made estimation of early warning models for bank supervision very difficult.
- Using the constructed database, the authors analyze causes of banking distress across EU banks and derive indicators and thresholds that distinguish sound banks from vulnerable ones.
Indicators, Thresholds, and Early Warning Implications
- The study identifies a set of indicators and thresholds useful for distinguishing sound banks from those vulnerable to financial distress.
- These indicators and thresholds are intended to support early warning systems and early intervention for bank supervision.
Relevant Subjects and Keywords
- Subject: Bank soundness, Bank supervision, Banking, Distressed institutions, Early warning systems, Financial crises, Financial institutions, Financial regulation and supervision, Financial sector policy and analysis, Loan loss provisions
- Keywords: bank analyst, bank assets, bank distress, bank Pd, bank PDs, Bank soundness, Bank supervision, bank-year observation, baseline hazard, Distressed institutions, Early Intervention, Early Warning System, Early warning systems, EU bank, Europe, European Union, Global, Loan loss provisions, Regulation, WP
Source: Tigran Poghosyan, and Martin Cihak. "Distress in European Banks: An Analysis Basedon a New Dataset", IMF Working Papers 2009, 009 (2009), January 1, 2009.