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Estimating Default Frequencies and Macrofinancial Linkages in the Mexican Banking Sector

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  • Marcos Souto
  • Rodolphe Blavy
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    Abstract

    The credit risk measures we develop in this paper are used to investigate macrofinancial linkages in the Mexican banking system. Domestic and external macro-financial variables are found to be closely associated with banking soundness. At the aggregate level, high external volatility and domestic interest rates are associated with higher expected default probability. Though results vary substantially across individual banks, domestic activity and U.S. growth, and higher asset prices, are generally associated with lower credit risks, while increased volatility worsens credit risks. The expected default probability is also found to be a leading indicator of traditional financial stability indicators.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/109.

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    Length: 32
    Date of creation: 01 May 2009
    Date of revision:
    Handle: RePEc:imf:imfwpa:09/109

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    Related research

    Keywords: Banking sector; Credit risk; Bank soundness; Banks; Data analysis; Economic models; banking; banking risk; banking system; credit risks; banking sector assets; sovereign risk; emerging markets; bank credit; probability of default; bank risk; bank vulnerability; mortgage lending; bank data; risk transfer; banking business; bank group; banking services; bank assets; risk management; banks ? assets; foreign exchange; risk-weighted assets;

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    References

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    1. Marcos Souto & Benjamin M. Tabak & Francisco Vazquez, 2009. "Linking Financial and Macroeconomic Factors to Credit Risk Indicators of Brazilian Banks," Working Papers Series 189, Central Bank of Brazil, Research Department.
    2. Robert C. Merton, 1973. "Theory of Rational Option Pricing," Bell Journal of Economics, The RAND Corporation, vol. 4(1), pages 141-183, Spring.
    3. 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. Saldías, Martín, 2013. "Systemic risk analysis using forward-looking Distance-to-Default series," Journal of Financial Stability, Elsevier, vol. 9(4), pages 498-517.

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