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Banking Fragility in Colombia: An Empirical Analysis Based on Balance Sheets

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  • Ignacio Lozano

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  • Alexander Guarín

    ()

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    Abstract

    In this paper, we study the empirical relationship between credit funding sources and the financial vulnerability of the Colombian banking system. We propose a statistical model to measure and predict banking-fragility episodes associated with credit funding sources classified into retail deposits and wholesale funds. We compute the probability of financial fragility for both the aggregated banking system and the individual banks. Our approach performs a Bayesian averaging of estimated logit regression models with monthly balance sheet data between 1996 and 2013. The results show the increasing use of wholesale funding to support credit expansion is a potential source of financial fragility. Therefore, monitoring credit funding sources could provide an additional tool to warn against banking disruptions.

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    Bibliographic Info

    Paper provided by BANCO DE LA REPÚBLICA in its series BORRADORES DE ECONOMIA with number 011145.

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    Length: 31
    Date of creation: 12 Mar 2014
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    Handle: RePEc:col:000094:011145

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    Related research

    Keywords: Credit cycle; financial stability; wholesale funds; balance sheet; logistic model regression; Bayesian model averaging.;

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