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Distress in European Banks: An Analysis Based on a New Dataset

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Author Info
Martin Cihák
Tigran Poghosyan

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Abstract

The global financial crisis has highlighted the importance of early identification of weak banks: when problems are identified late, solutions are much more costly. Until recently, Europe has seen only a small number of outright bank failures, which made the estimation of early warning models for bank supervision very difficult. This paper presents a unique database of individual bank distress across the European Union from mid-1990s to 2008. Using this data set, we analyze the causes of banking distress in Europe. We identify a set of indicators and thresholds that can help to distinguish sound banks from those vulnerable to financial distress.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/9.

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Length: 37 pages
Date of creation: 21 Jan 2009
Date of revision:
Handle: RePEc:imf:imfwpa:09/9

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Related research
Keywords: Banks ; Europe ; Bank soundness ; Bank supervision ; Financial stability ; Databases ; Forecasting models ; Data analysis ; Cross country analysis ; Economic integration ;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Blum, Jürg M., 2008. "Why [`]Basel II' may need a leverage ratio restriction," Journal of Banking & Finance, Elsevier, vol. 32(8), pages 1699-1707, August. [Downloadable!] (restricted)
  2. Robert A. Eisenbeis & George G. Kaufman, 2005. "Bank crisis resolution and foreign-owned banks," Economic Review, Federal Reserve Bank of Atlanta, issue Q4, pages 1-18. [Downloadable!]
  3. Thomas B. King & Daniel A. Nuxoll & Timothy J. Yeager, 2006. "Are the causes of bank distress changing? can researchers keep up?," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 57-80. [Downloadable!]
  4. Martin Cihák & Klaus Schaeck, 2007. "How Well Do Aggregate Bank Ratios Identify Banking Problems?," IMF Working Papers 07/275, International Monetary Fund. [Downloadable!]
  5. Koetter, M. & Bos, J.W.B. & Heid, F. & Kolari, J.W. & Kool, C.J.M. & Porath, D., 2007. "Accounting for distress in bank mergers," Journal of Banking & Finance, Elsevier, vol. 31(10), pages 3200-3217, October. [Downloadable!] (restricted)
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  6. Kick, Thomas & Koetter, Michael, 2007. "Slippery slopes of stress: Ordered failure events in German banking," Journal of Financial Stability, Elsevier, vol. 3(2), pages 132-148, July. [Downloadable!] (restricted)
    Other versions:
  7. Franklin Allen & Douglas Gale, 2004. "Competition and financial stability," Proceedings, Federal Reserve Bank of Cleveland, pages 453-486.
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  8. Eduardo Borensztein & Catherine A. Pattillo & Andrew Berg, 2004. "Assessing Early Warning Systems: How Have They Worked in Practice?," IMF Working Papers 04/52, International Monetary Fund. [Downloadable!]
  9. Kraft, Evan & Galac, Tomislav, 2007. "Deposit interest rates, asset risk and bank failure in Croatia," Journal of Financial Stability, Elsevier, vol. 2(4), pages 312-336, March. [Downloadable!] (restricted)
  10. Alexander F. Tieman & Martin Cihák, 2008. "Quality of Financial Sector Regulation and Supervision Around the World," IMF Working Papers 08/190, International Monetary Fund. [Downloadable!]
  11. Bongini, Paola & Laeven, Luc & Majnoni, Giovanni, 2002. "How good is the market at assessing bank fragility? A horse race between different indicators," Journal of Banking & Finance, Elsevier, vol. 26(5), pages 1011-1028, May. [Downloadable!] (restricted)
  12. Heider, Florian & Gropp, Reint Eberhard, 2008. "The Determinants of Capital Structure: Some Evidence from Banks," ZEW Discussion Papers 08-015, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  13. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2006. "Bank concentration, competition, and crises: First results," Journal of Banking & Finance, Elsevier, vol. 30(5), pages 1581-1603, May. [Downloadable!] (restricted)
  14. Martin Cihák & Jörg Decressin, 2007. "The Case for a European Banking Charter," IMF Working Papers 07/173, International Monetary Fund. [Downloadable!]
  15. Martin, Daniel, 1977. "Early warning of bank failure : A logit regression approach," Journal of Banking & Finance, Elsevier, vol. 1(3), pages 249-276, November. [Downloadable!] (restricted)
  16. Flannery, Mark J, 1998. "Using Market Information in Prudential Bank Supervision: A Review of the U.S. Empirical Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(3), pages 273-305, August.
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Martin Cihák & Petya Koeva Brooks, 2009. "From Subprime Loans to Subprime Growth? Evidence for the Euro Area," IMF Working Papers 09/69, International Monetary Fund. [Downloadable!]
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