Banking Sector Fragility and Systemic Sources of Fragility

February 1, 1996

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Format: Chicago

Brenda Gonzalez-Hermosillo. Banking Sector Fragility and Systemic Sources of Fragility, (USA: International Monetary Fund, 1996) accessed November 21, 2024

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

A theoretical framework to assess the degree of fragility or, inversely, the soundness of the banking system is proposed. It is argued that, while a bank may be either solvent or insolvent at any given time, its degree of fragility must be a forward-looking measure based on the probability that it can withstand a destabilizing shock. Externalities are particularly important because they can constitute a serious source of systemic risk. The factors that determine banks’ soundness can be separated into bank-specific and those common to all banks (subject to microprudential and macroprudential considerations, respectively). The interconnection between banking crises and currency crises (in both directions) is also discussed.

Subject: Bank deposits, Banking, Banking crises, Commercial banks, Currency crises, Distressed institutions, Financial crises, Financial institutions

Keywords: Balance sheet, Balance sheet data, Bank assets, Bank failure, Bank portfolio, Bank regulator, Banking crises, Commercial banks, Currency crises, Deposit guarantee, Distressed institutions, Net asset income, Risk control management system, WP

Publication Details

Pages:

42
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1996/012
Stock No:

WPIEA0121996
ISBN:

9781451842852
ISSN:

1018-5941

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