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Determinants of the Venezuelan Banking Crisis of the Mid-1990s: An Event History Analysis

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  • Alicia García Herrero

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    (Banco de España and Johns Hopkins University)

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    Abstract

    This paper uses event history analysis to test the significance of several macro-economic and bank-specific variables in explaining bank failures during the Venezuelan banking crisis of the mid-1990s. Poor bank profitability, proxied by a low net interest margin, and low GDP growth are found significant in increasing the probability of bank failure. Other useful indicators, for some model specifications, are the share of nonperforming loans and that of non productive assets to banks’ own funds, which raise the likelihood of crisis. A large amount of bank liquid assets, in turn, reduces the likelihood of failure for some model specifications. The opposite is true for high real deposit rates. Although it could be interpreted, at first sight, as a too restrictive monetary policy, this is not supported by the lack of significance of the real lending rate and, even more so, real money growth, a more direct indicator of the monetary policy stance.

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    Bibliographic Info

    Article provided by in its journal Economia Mexicana NUEVA EPOCA.

    Volume (Year): XIV (2005)
    Issue (Month): 1 (January-June)
    Pages: 71-115

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    Handle: RePEc:emc:ecomex:v:14:y:2005:i:1:p:71-115

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    Keywords: Venezuela; banking crisis; early indicators;

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    1. Cole, Rebel A. & Gunther, Jeffery W., 1995. "Separating the likelihood and timing of bank failure," Journal of Banking & Finance, Elsevier, vol. 19(6), pages 1073-1089, September.
    2. Sinkey, Joseph F, Jr, 1975. "A Multivariate Statistical Analysis of the Characteristics of Problem Banks," Journal of Finance, American Finance Association, vol. 30(1), pages 21-36, March.
    3. Linda M. Hooks, 1995. "Bank Asset Risk: Evidence From Early-Warning Models," Contemporary Economic Policy, Western Economic Association International, vol. 13(4), pages 36-50, October.
    4. Katerina Simons & Stephen Cross, 1991. "Do capital markets predict problems in large commercial banks?," New England Economic Review, Federal Reserve Bank of Boston, issue May, pages 51-56.
    5. Pettway, Richard H., 1980. "Potential Insolvency, Market Efficiency, and Bank Regulation of Large Commercial Banks," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 15(01), pages 219-236, March.
    6. Robert B. Avery & Gerald A. Hanweck, 1984. "A dynamic analysis of bank failures," Research Papers in Banking and Financial Economics 74, Board of Governors of the Federal Reserve System (U.S.).
    7. James R. Barth & R. Dan Brumbaugh & Daniel Sauerhaft & George H.K. Wang, 1985. "Thrift institution failures: causes and policy issues," Proceedings 68, Federal Reserve Bank of Chicago.
    8. Asli Demirgüç-Kunt & Enrica Detragiache, 1997. "The Determinants of Banking Crises," IMF Working Papers 97/106, International Monetary Fund.
    9. International Monetary Fund, 2002. "Financial Soundness Indicators," IMF Occasional Papers 212, International Monetary Fund.
    10. International Monetary Fund, 1998. "Leading Indicators of Banking Crises," IMF Working Papers 98/91, International Monetary Fund.
    11. Kiefer, Nicholas M, 1988. "Economic Duration Data and Hazard Functions," Journal of Economic Literature, American Economic Association, vol. 26(2), pages 646-79, June.
    12. Alicia García-Herrero, 1997. "Monetary Impact of a Banking Crisis and the Conduct of Monetary Policy," IMF Working Papers 97/124, International Monetary Fund.
    13. Richard E. Randall, 1989. "Can the market evaluate asset quality exposure in banks?," New England Economic Review, Federal Reserve Bank of Boston, issue Jul, pages 3-24.
    14. Brenda González-Hermosillo, 1999. "Determinants of Ex-Ante Banking System Distress," IMF Working Papers 99/33, International Monetary Fund.
    15. David C. Wheelock & Paul W. Wilson, 1994. "Can deposit insurance increase the risk of bank failure? Some historical evidence," Review, Federal Reserve Bank of St. Louis, issue May, pages 57-71.
    16. Martin, Daniel, 1977. "Early warning of bank failure : A logit regression approach," Journal of Banking & Finance, Elsevier, vol. 1(3), pages 249-276, November.
    17. Gary Whalen, 1991. "A proportional hazards model of bank failure: an examination of its usefulness as an early warning tool," Economic Review, Federal Reserve Bank of Cleveland, issue Q I, pages 21-31.
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