Determinants of Ex-Ante Banking System Distress: A Macro-Micro Empirical Exploration of Some Recent Episodes

March 1, 1999

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Brenda Gonzalez-Hermosillo. Determinants of Ex-Ante Banking System Distress: A Macro-Micro Empirical Exploration of Some Recent Episodes, (USA: International Monetary Fund, 1999) accessed December 22, 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

This paper empirically analyzes the contribution of microeconomic and macroeconomic factors in five recent episodes of banking system problems in the U.S. Southwest (1986–92), Northeast (1991–92), and California (1992–93); Mexico (1994–95); and Colombia (1982–87). The paper finds that a low capital equity and reserve coverage of problem loans ratio is a leading indicator of bank distress, signaling a high likelihood of near-term failure. Distress is shown to be a function of the same fundamental macro-micro sources of risk that determine bank failures. Focusing on distress has the advantage that the fragility of the banking system can be assessed before a crisis actually occurs.

Subject: Banking, Commercial banks, Credit risk, Distressed institutions, Financial institutions, Financial regulation and supervision, Loans, Nonperforming loans

Keywords: Asia and Pacific, Bank distress, Banking crisis, Banking sector fragility, Commercial banks, Coverage ratio, Credit risk, Credit risk, Distressed institutions, Equity capital, Global, Hazard ratio, Loans, Nonperforming loans, Performing loan, Survival time, WP

Publication Details

Pages:

114
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1999/033
Stock No:

WPIEA0331999
ISBN:

9781451845167
ISSN:

1018-5941

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