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Banking Sector Fragility and Systemic Sources of Fragility

Author

Listed:
  • Ms. Brenda Gonzalez-Hermosillo

Abstract

A theoretical framework to assess the degree of fragility or, inversely, the soundness of the banking system is proposed. It is argued that, while a bank may be either solvent or insolvent at any given time, its degree of fragility must be a forward-looking measure based on the probability that it can withstand a destabilizing shock. Externalities are particularly important because they can constitute a serious source of systemic risk. The factors that determine banks’ soundness can be separated into bank-specific and those common to all banks (subject to microprudential and macroprudential considerations, respectively). The interconnection between banking crises and currency crises (in both directions) is also discussed.

Suggested Citation

  • Ms. Brenda Gonzalez-Hermosillo, 1996. "Banking Sector Fragility and Systemic Sources of Fragility," IMF Working Papers 1996/012, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1996/012
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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=2000
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    Citations

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    Cited by:

    1. Reuven Glick & Michael M. Hutchison, 1999. "Banking and currency crises; how common are twins?," Proceedings, Federal Reserve Bank of San Francisco, issue Sep.
    2. Tai, Chu-Sheng, 2004. "Contagion: evidence from international banking industry," Journal of Multinational Financial Management, Elsevier, vol. 14(4-5), pages 353-368.
    3. Michael M. Hutchison, 1999. "Early warning indicators of banking sector distress," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue sep17.
    4. Christian A. Johnson, 2005. "Modelos de alerta temprana para pronosticar crisis bancarias: desde la extracción de señales a las redes neuronales," Revista de Analisis Economico – Economic Analysis Review, Universidad Alberto Hurtado/School of Economics and Business, vol. 20(1), pages 95-121, June.
    5. Dieter Gramlich & Mikhail V. Oet & Stephen J. Ong, 2013. "Policy in adaptive financial markets—the use of systemic risk early warning tools," Working Papers (Old Series) 1309, Federal Reserve Bank of Cleveland.
    6. Jan P.A.M. Jacobs & Gerard H. Kuper & Lestano, 2004. "Currency crises in Asia: A multivariate logit approach," International Finance 0409005, University Library of Munich, Germany.
    7. Demirguc-Kunt, Asli & Detragiache, Enrica, 1997. "The determinants of banking crises : evidence from industrial and developing countries," Policy Research Working Paper Series 1828, The World Bank.
    8. Valeriya Dinger & J‹Rgen Von Hagen, 2009. "Does Interbank Borrowing Reduce Bank Risk?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(2-3), pages 491-506, March.
    9. Lestano & Jacobs, Jan & Kuper, Gerard H., 2003. "Indicators of financial crises do work! : an early-warning system for six Asian countries," CCSO Working Papers 200313, University of Groningen, CCSO Centre for Economic Research.
    10. Fazelina Sahul Hamid, 2013. "The Effect of Reliance on International Funding on Banking Fragility: Evidence from East Asia," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 7(1), pages 29-60, February.
    11. Ward, Felix, 2014. "Spotting the Danger Zone - Forecasting Financial Crises with Classification Tree Ensembles and Many Predictors," Bonn Econ Discussion Papers 01/2014, University of Bonn, Bonn Graduate School of Economics (BGSE).
    12. Anichul Khan & Hasnat Dewan, 2011. "Deposit insurance scheme and banking crises: a special focus on less-developed countries," Empirical Economics, Springer, vol. 41(1), pages 155-182, August.
    13. Miller, Victoria, 1999. "The timing and size of bank-financed speculative attacks," Journal of International Money and Finance, Elsevier, vol. 18(3), pages 459-470.
    14. Hulya Bayir, 2001. "Measuring the Impact of Full Coverage Deposit Insurance Policy in a Probit Model : A Study of the Privately Owned Commercial Banks in Turkey," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 1(1), pages 1-23.
    15. repec:dgr:rugccs:200313 is not listed on IDEAS

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