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Financial soundness indicators and financial crisis episodes

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  • Maria Th. Kasselaki

    (Bank of Greece)

  • Athanasios O. Tagkalakis

    ()
    (Bank of Greece)

Abstract

This paper studies the links between of financial soundness indicators and financial crisis episodes controlling for several macroeconomic and fiscal variables in 20 OECD. We focus our attention on aggregate capital adequacy, asset quality and bank profitability indicators compiled by the IMF. Our key findings suggest that in times of severe financial crisis regulatory capital to risk weighted assets is increased (by about 0.5-0.6 percentage points –p.p.) to abide by regulatory and supervisory demands, non performing loans (NPL) to total loans increase dramatically (by about 0.5-0.6 p.p.), but loan loss provisions lag behind NPLs (they fall by about 12.3-18.8 p.p.) and profitability deteriorates dramatically (returns on assets (equity) fall by about 0.3-0.4 (5.0-7.0) p.p.).

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Bibliographic Info

Paper provided by Bank of Greece in its series Working Papers with number 158.

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Length: 66
Date of creation: May 2013
Date of revision:
Handle: RePEc:bog:wpaper:158

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Keywords: Bank profitability; capital adequacy; asset quality; financial crisis.;

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Cited by:
  1. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "The Aftermath of Financial Crises," American Economic Review, American Economic Association, American Economic Association, vol. 99(2), pages 466-72, May.
  2. Athanasios O. Tagkalakis, 2014. "Financial stability indicators and public debt developments," Working Papers, Bank of Greece 179, Bank of Greece.

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