Banking Sector Fragility and Systemic Sources of Fragility
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.
Series:
Working Paper No. 1996/012
Subject:
Bank deposits Banking Banking crises Commercial banks Currency crises Distressed institutions Financial crises Financial institutions
English
Publication Date:
February 1, 1996
ISBN/ISSN:
9781451842852/1018-5941
Stock No:
WPIEA0121996
Pages:
42
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