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Detection of Bank Failures in Transition Economies: The Case of the Czech Republic

Author

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  • Jan Hanousek
  • Jiri Podpiera

Abstract

This paper studies bank-failure models in the context of transition economies. In order to capture the default risk of banks, data on the structure of retail deposit rates is used to improve the prognostic quality of bank-failure prediction. The Czech bank crisis of 1994?1996, during which 14 banks failed, is used to verify the suggested approach. It is shown that banking supervision did not have ? most likely given the low quality of the available accounting data ? better information with respect to foretelling bank failures than the general public did via retail interest rates. In addition, the combination of balance-sheet and interest-rate data significantly improves the quality of bank-failure prediction. Thus, the utilization of information related to interest rates can increase the efficiency of banking supervision and can provide early warning signals of bank failures.

Suggested Citation

  • Jan Hanousek & Jiri Podpiera, 2001. "Detection of Bank Failures in Transition Economies: The Case of the Czech Republic," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 51(5), pages 264-278, May.
    • Handle: RePEc:fau:fauart:v:51:y:2001:i:4:p:264-278
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    File URL: http://journal.fsv.cuni.cz/storage/348_002_264.pdf
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    Citations

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    Cited by:

    1. Martin Cihak, 2004. "Stress Testing: A Review of Key Concepts," Research and Policy Notes 2004/02, Czech National Bank.
    2. Salvador Marín Hernández & Ester Gras Gil & Marcos Antón Renart, 2011. "Financial information and restructuring of spanish savings banks in a context of crisis. Changes in the regulation; content and evolution of FROB," CIRIEC-España, revista de economía pública, social y cooperativa, CIRIEC-España, issue 73, pages 99-126, October.

    More about this item

    Keywords

    bank failures; Czech banking crisis; default risk; transition economies;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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