{
  "title": "Estimating Default Frequencies and Macrofinancial Linkages in the Mexican Banking Sector",
  "publication": "IMF Working Papers, May 1, 2009",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/31/estimating-default-frequencies-and-macrofinancial-linkages-in-the-mexican-banking-sector-22937",
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  "summary": "The credit risk measures we develop 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.",
  "sections": [
    {
      "heading": "Summary",
      "content": "- The credit risk measures developed in this paper are used to investigate macrofinancial linkages in the Mexican banking system.\n- Domestic and external macro-financial variables are found to be closely associated with banking soundness.\n- At the aggregate level, high external volatility and domestic interest rates are associated with higher expected default probability.\n- Results vary substantially across individual banks.\n- Domestic activity and U.S. growth, and higher asset prices, are generally associated with lower credit risks, while increased volatility worsens credit risks.\n- The expected default probability is also found to be a leading indicator of traditional financial stability indicators."
    },
    {
      "heading": "Main findings",
      "content": "- Aggregate associations:\n  - High external volatility → higher expected default probability.\n  - Higher domestic interest rates → higher expected default probability.\n- Cross-bank heterogeneity:\n  - Results vary substantially across individual banks.\n  - Domestic activity and U.S. growth → generally associated with lower credit risks.\n  - Higher asset prices → generally associated with lower credit risks.\n  - Increased volatility → worsens credit risks.\n- Predictive signal:\n  - Expected default probability acts as a leading indicator of traditional financial stability indicators."
    },
    {
      "heading": "Subject areas and keywords",
      "content": "- 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)\n- 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\n\n---\n\n Content in this bundle\n\n- wp09109 - References\n  - wp09109 - References (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp09109 - References (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/estimating-default-frequencies-and-macrofinancial-linkages-in-the-mexican-banking-sector-22937"
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    "Authors: Marcos R Souto, Rodolphe Blavy",
    "Published: May 1, 2009",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451872569.001",
    "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.",
    "Aggregate associations:",
    "Cross-bank heterogeneity:",
    "Predictive signal:",
    "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",
    "**_wp09109 - References**"
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