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Monitoring Banking Sector Fragility: A Multivariate Logit Approach

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  • Demirguc, Asli
  • Detragiache, Enrica

Abstract

This article explores how a multivariate logit model of the probability of a banking crisis can be used to monitor banking sector fragility. The proposed approach relies on readily available data, and the fragility assessment has a clear interpretation based on in-sample statistics. The model has better in-sample performance than currently available alternatives, and the monitoring system can be tailored to fit the preferences of decisionmakers regarding type I and type II errors. The framework can be useful as a preliminary screen to economize on precautionary costs. Copyright 2000 by Oxford University Press.

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Bibliographic Info

Article provided by World Bank Group in its journal World Bank Economic Review.

Volume (Year): 14 (2000)
Issue (Month): 2 (May)
Pages: 287-307

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Handle: RePEc:oup:wbecrv:v:14:y:2000:i:2:p:287-307

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  1. Graciela Laura Kaminsky, 1999. "Currency and Banking Crises - The Early Warnings of Distress," IMF Working Papers 99/178, International Monetary Fund.
  2. Eichengreen, Barry & Rose, Andrew K, 1998. "Staying Afloat When the Wind Shifts: External Factors and Emerging-Market Banking Crises," CEPR Discussion Papers 1828, C.E.P.R. Discussion Papers.
  3. Asli Demirgüç-Kunt & Enrica Detragiache, 1998. "The Determinants of Banking Crises in Developing and Developed Countries," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 81-109, March.
  4. Jeffrey Sachs & Aaron Tornell & Andres Velasco, 1996. "Financial Crises in Emerging Markets: The Lessons from 1995," Harvard Institute of Economic Research Working Papers 1759, Harvard - Institute of Economic Research.
  5. Patrick Honohan, 1997. "Banking system failures in developing and transition countries: Diagnosis and predictions," BIS Working Papers 39, Bank for International Settlements.
  6. repec:fth:inadeb:318 is not listed on IDEAS
  7. Graciela L. Kaminsky & Carmen M. Reinhart, 1996. "The twin crises: the causes of banking and balance-of-payments problems," International Finance Discussion Papers 544, Board of Governors of the Federal Reserve System (U.S.).
  8. International Monetary Fund, 1998. "Leading Indicators of Banking Crises-Was Asia Different?," IMF Working Papers 98/91, International Monetary Fund.
  9. Morris Goldstein & John Hawkins, 1998. "The Origin of the Asian Financial Turmoil," RBA Research Discussion Papers rdp9805, Reserve Bank of Australia.
  10. Michael Gavin & Ricardo Hausmann, 1996. "The Roots of Banking Crises: The Macroeconomic Context," Research Department Publications 4026, Inter-American Development Bank, Research Department.
  11. Frederic S. Mishkin, 1997. "Understanding Financial Crises: A Developing Country Perspective," NBER Working Papers 5600, National Bureau of Economic Research, Inc.
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