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Macroeconomic and Financial Soundness Indicators

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  • Rita Babihuga
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    Abstract

    This paper analyzes the relationship between selected macroeconomic and financial soundness indicators (FSIs) using a newly assembled panel dataset of FSIs for 96 countries covering the period 1998-2005. The analysis covers key macroeconomic indicators and FSIs of capital adequacy, asset quality and profitability. The paper finds that FSIs fluctuate strongly with both the business cycle and the inflation rate. Short term interest rates and the real exchange rate also emerge as important determinants. There is also a considerable degree of heterogeneity in the relationship between macroeconomic indicators and FSIs across the sample of countries. Several country and industry specific characteristics including country income levels, financial depth, market concentration, and the quality of regulatory supervision are found to be significant in explaining this cross country heterogeneity.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/115.

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    Length: 30
    Date of creation: 01 May 2007
    Date of revision:
    Handle: RePEc:imf:imfwpa:07/115

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    Related research

    Keywords: Financial soundness indicators; Economic indicators; capital adequacy; banking; capital ratio; bank deposits; banking crises; banking supervision; bank capital; capital adequacy ratio; banking system; real effective exchange rate; return on assets; inflation rate; capital adequacy ratios; bank profitability; return on equity; capital markets; national bank; banking sector; bank of international settlements; cost of capital; equity capital; bank supervision; bank performance; bank profits; consumer price index; bank distress; banking theory; macroeconomic stabilization; banking systems; bank soundness; banking system assets; bank capital regulation; bank provisioning; risk weighted asset; banking sector fragility; bank regulation; banks ? assets; bank for international settlements; banking system distress; bank failures; measure of profitability; monetary authority; bank assets; banking industry;

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    1. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
    2. Asli Demirgüç-Kunt & Enrica Detragiache, 2005. "Cross-Country Empirical Studies of Systemic Bank Distress: A Survey," IMF Working Papers 05/96, International Monetary Fund.
    3. Enrica Detragiache & Asli Demirgüç-Kunt, 1998. "Financial Liberalization and Financial Fragility," IMF Working Papers 98/83, International Monetary Fund.
    4. World Bank & International Monetary Fund, 2005. "Financial Sector Assessment : A Handbook," World Bank Publications, The World Bank, number 7259, October.
    5. 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.
    6. International Monetary Fund, 1998. "Leading Indicators of Banking Crises," IMF Working Papers 98/91, International Monetary Fund.
    7. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    8. Richard Podpiera, 2004. "Does Compliance with Basel Core Principles Bring Any Measurable Benefits?," IMF Working Papers 04/204, International Monetary Fund.
    9. repec:fth:inadeb:318 is not listed on IDEAS
    10. Michael Gavin & Ricardo Hausmann, 1996. "The Roots of Banking Crises: The Macroeconomic Context," IDB Publications 5819, Inter-American Development Bank.
    11. Mario Quagliariello, . "Banks' Performance over the Business Cycle: A Panel Analysis on Italian Intermediaries," Discussion Papers 04/17, Department of Economics, University of York.
    12. Brenda González-Hermosillo, 1999. "Determinants of Ex-Ante Banking System Distress," IMF Working Papers 99/33, International Monetary Fund.
    13. Jim Wong & Ka-fai Choi & Tom Fong, 2005. "Determinants of the Capital Level of Banks in Hong Kong," Working Papers 0513, Hong Kong Monetary Authority.
    14. International Monetary Fund, 2002. "Financial Soundness Indicators," IMF Occasional Papers 212, International Monetary Fund.
    15. Anderson, T. W. & Hsiao, Cheng, 1982. "Formulation and estimation of dynamic models using panel data," Journal of Econometrics, Elsevier, vol. 18(1), pages 47-82, January.
    16. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
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    Cited by:
    1. Maria Th. Kasselaki & Athanasios O. Tagkalakis, 2013. "Financial soundness indicators and financial crisis episodes," Working Papers 158, Bank of Greece.
    2. Festic, Mejra & Kavkler, Alenka, 2012. "The Roots of the Banking Crisis in the New EU Member States: A Panel Regression Approach," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 20-40, March.
    3. Akhter, Selim & Daly, Kevin, 2009. "Bank health in varying macroeconomic conditions: A panel study," International Review of Financial Analysis, Elsevier, vol. 18(5), pages 285-293, December.
    4. Barrell, Ray & Davis, E. Philip & Karim, Dilruba & Liadze, Iana, 2010. "Bank regulation, property prices and early warning systems for banking crises in OECD countries," Journal of Banking & Finance, Elsevier, vol. 34(9), pages 2255-2264, September.
    5. Festic, Mejra & Kavkler, Alenka & Repina, Sebastijan, 2011. "The macroeconomic sources of systemic risk in the banking sectors of five new EU member states," Journal of Banking & Finance, Elsevier, vol. 35(2), pages 310-322, February.
    6. Solntsev, O. & Mamonov, M. & Pestova, A. & Magomedova, Z., 2011. "Experience in Developing Early Warning System for Financial Crises and the Forecast of Russian Banking Sector Dynamic in 2012," Journal of the New Economic Association, New Economic Association, issue 12, pages 41-76.
    7. Boudriga, Abdelkader & Boulila, Neila & Jellouli, Sana, 2009. "Does bank supervision impact nonperforming loans : cross-country determinants using agregate data ?," MPRA Paper 18068, University Library of Munich, Germany.

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