Extracting Leading Indicators of Bank Fragility from Market Prices – Estonia Focus
AbstractBanking reform has proved to be one of the most problematic elements of economic transition in central and Eastern Europe. Therefore the paper considers the development of the Estonian banking sector and derives individual banks´ fragility scores during transition. To this end we use option-based tools and equity prices to estimate distance-to-default measures of banks´ distress probabilities. Overall, the results suggest that market indicators are moderately useful for anticipating future financial distress and rating changes in transition economies. The implication for an effective supervisory framework is to use a plurality of risk scores when assessing bank vulnerability.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1647.
Date of creation: 2006
Date of revision:
banking; financial stability; bank fragility; options; Estonia;
Other versions of this item:
- Yu-Fu Chen & Michael Funke & Kadri Männasoo, 2005. "Extracting Leading Indicators of Bank Fragility from Market Prices - Estonia Focus," Dundee Discussion Papers in Economics, Economic Studies, University of Dundee 185, Economic Studies, University of Dundee.
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-01-29 (All new papers)
- NEP-EFF-2006-01-29 (Efficiency & Productivity)
- NEP-FIN-2006-01-29 (Finance)
- NEP-FMK-2006-01-29 (Financial Markets)
- NEP-MAC-2006-01-29 (Macroeconomics)
- NEP-PKE-2006-01-29 (Post Keynesian Economics)
- NEP-RMG-2006-01-29 (Risk Management)
- NEP-TRA-2006-01-29 (Transition Economics)
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