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Predicting banking distress in the EMEAP economies

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  • Wong, Jim
  • Wong, Tak-Chuen
  • Leung, Phyllis
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    Abstract

    This study develops a panel probit model to identify the leading indicators of banking distress and to estimate the banking distress probability for EMEAP economies. Macroeconomic fundamentals, currency crisis vulnerability, credit risks of banks and non-financial companies, asset price gaps, credit growth, and the occurrence of distress in other economies are found to be important leading indicators. The model is applied to stress test the Hong Kong banking sector. Simulation results suggest that compared with the period before the Asian financial crisis, the banking sector is currently more capable of withstanding shocks similar to those that occurred during the crisis.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Stability.

    Volume (Year): 6 (2010)
    Issue (Month): 3 (September)
    Pages: 169-179

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    Handle: RePEc:eee:finsta:v:6:y:2010:i:3:p:169-179

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    Web page: http://www.elsevier.com/locate/jfstabil

    Related research

    Keywords: Asia Pacific economies Banking distress Early warning systems Econometric models Stress testing;

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    Cited by:
    1. Giovanni Caggiano & Pietro Calice & Leone Leonida, 2013. "Working Paper 190 - Early Warning Systems and Systemic Banking Crises in Low Income Countries: A Multinomial Logit Approach," Working Paper Series 993, African Development Bank.
    2. Maghyereh, Aktham I. & Awartani, Basel, 2014. "Bank distress prediction: Empirical evidence from the Gulf Cooperation Council countries," Research in International Business and Finance, Elsevier, vol. 30(C), pages 126-147.

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