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Banking Stability Measures

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  • C. A. E. Goodhart
  • Miguel A. Segoviano Basurto
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    Abstract

    This paper defines a set of banking stability measures which take account of distress dependence among the banks in a system, thereby providing a set of tools to analyze stability from complementary perspectives by allowing the measurement of (i) common distress of the banks in a system, (ii) distress between specific banks, and (iii) distress in the system associated with a specific bank. Our approach defines the banking system as a portfolio of banks and infers the system''s multivariate density (BSMD) from which the proposed measures are estimated. The BSMD embeds the banks'' default inter-dependence structure that captures linear and non-linear distress dependencies among the banks in the system, and its changes at different times of the economic cycle. The BSMD is recovered using the CIMDO-approach, a new approach that in the presence of restricted data, improves density specification without explicitly imposing parametric forms that, under restricted data sets, are difficult to model. Thus, the proposed measures can be constructed from a very limited set of publicly available data and can be provided for a wide range of both developing and developed countries.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/4.

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    Length: 54
    Date of creation: 01 Jan 2009
    Date of revision:
    Handle: RePEc:imf:imfwpa:09/4

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    Related research

    Keywords: Financial stability; Financial risk; Banking systems; Data analysis; Economic models; banking; probability; banking system; probabilities; correlation; random variables; equation; banking stability; integral; correlations; random variable; multivariate distribution; calibration; statistics; bank for international settlements; optimization; normal distributions; multivariate distributions; causation; time series; normal distribution; survey; bank distress; bank deposit; bank risk; bank lending; functional form; banking crises; probability of default; bank problems; bank solvency; bank restructuring; banking distress; correlation analysis; foreign exchange; covariance; mathematical theory; banking sectors; banking regulation; bank holding companies; calibrations; gaussian distributions; mathematical statistics; mathematical models; conditional expectation; statistician; bank equity; banking supervision; bank lending rates; bank risks; banking crisis; bank fragility; calculus; bank regulation; mathematics; banking industry; banking system stability; measurement errors; equations; bivariate distribution; sovereign risk; systemic banking distress; bank insolvency; bank lending behavior; logarithm; bank holding; probability distribution; bank default;

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    References

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    20. Charles Goodhart & Miguel A. Segoviano, 2004. "Basel and procyclicality: a comparison of the standardised and IRB approaches to an improved credit risk method," LSE Research Online Documents on Economics 24821, London School of Economics and Political Science, LSE Library.
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