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Factors influencing the European bank’s probability of default: An application of SYMBOL methodology

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  • Parrado-Martínez, Purificación
  • Gómez-Fernández-Aguado, Pilar
  • Partal-Ureña, Antonio

Abstract

This paper analyses European banks’ probability of default (PD) by estimating a new measure that is based on the SYstemic Model of Bank Originated Losses (SYMBOL). First, we calculate the individual PD of a sample of European credit institutions during the period of 2011–2016. Then, dynamic panel data models are estimated to analyse the influence of several bank-specific and macroeconomic variables on the PD. We conclude that capital adequacy, liquidity, asset quality and profitability indicators influence the European banks’ PD. The macroeconomic scenario, the industry concentration and the size of banks also appear to have an impact on their risk.

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  • Parrado-Martínez, Purificación & Gómez-Fernández-Aguado, Pilar & Partal-Ureña, Antonio, 2019. "Factors influencing the European bank’s probability of default: An application of SYMBOL methodology," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 61(C), pages 223-240.
  • Handle: RePEc:eee:intfin:v:61:y:2019:i:c:p:223-240
    DOI: 10.1016/j.intfin.2019.04.003
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    More about this item

    Keywords

    Probability of default; Basel regulatory framework; CAMEL indicators; SYMBOL; Financial stability;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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