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A simple index of banking fragility: application to Indian data

Author

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  • Saibal Ghosh

Abstract

Purpose - Using data on Indian banks for 1997‐2007, the purpose of this paper is to develop an index of banking fragility and subsequently examine the factors affecting the index. Design/methodology/approach - The author employs basic distributional assumptions to develop the index and subsequently, employs panel data techniques to examine the factors which affect the index. Findings - Based on the statistical properties of the index, banks are classified as exhibiting high, moderate, and low stability. The multivariate regressions indicate an important role for banking industry variables in influencing the index. Practical implications - The paper complements the strand of literature which has been focusing on developing indicators of banking stability and examining the factors affecting them. Originality/value - To the author's knowledge, this is perhaps the first study for an emerging economy and more certainly for India, to examine this issue.

Suggested Citation

  • Saibal Ghosh, 2011. "A simple index of banking fragility: application to Indian data," Journal of Risk Finance, Emerald Group Publishing Limited, vol. 12(2), pages 112-120, March.
    • Handle: RePEc:eme:jrfpps:15265941111112839
    DOI: 10.1108/15265941111112839
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    References listed on IDEAS

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    1. Barry Eichengreen and Carlos Arteta., 2000. "Banking Crises in Emerging Markets: Presumptions and Evidence," Center for International and Development Economics Research (CIDER) Working Papers C00-115, University of California at Berkeley.
    2. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
    3. Demirguc-Kunt, Asli & Huizinga, Harry, 1999. "Market Discipline and Financial Safety Net Design," CEPR Discussion Papers 2311, C.E.P.R. Discussion Papers.
    4. Hutchison, Michael & McDill, Kathleen, 1999. "Are All Banking Crises Alike? The Japanese Experience in International Comparison," Journal of the Japanese and International Economies, Elsevier, vol. 13(3), pages 155-180, September.
    5. María Soledad Martínez-Peria & Sergio Schmukler, 2002. "Do Depositors Punish Banks for Bad Behavior? Market Discipline, Deposit Insurance, and Banking Crises," Central Banking, Analysis, and Economic Policies Book Series, in: Leonardo Hernández & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.),Banking, Financial Integration, and International Crises, edition 1, volume 3, chapter 5, pages 143-174, Central Bank of Chile.
    6. S. Narayan, 2009. "India," Chapters, in: Peter Draper & Philip Alves & Razeen Sally (ed.), The Political Economy of Trade Reform in Emerging Markets, chapter 7, Edward Elgar Publishing.
    7. repec:fip:fedgsq:y:2008:x:65 is not listed on IDEAS
    8. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
    9. International Monetary Fund, 1998. "Leading Indicators of Banking Crises: Was Asia Different?," IMF Working Papers 1998/091, International Monetary Fund.
    10. Asli Demirgüç-Kunt & Enrica Detragiache, 1998. "The Determinants of Banking Crises in Developing and Developed Countries," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 81-109, March.
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    Cited by:

    1. Rachita Gulati & M. Kabir Hassan & Vincent Charles, 2024. "Developing a New Multidimensional Index of Bank Stability and Its Usage in the Design of Optimal Policy Interventions," Computational Economics, Springer;Society for Computational Economics, vol. 63(4), pages 1281-1325, April.
    2. Sreenivasulu Puli & Nagaraju Thota & A. C. V. Subrahmanyam, 2024. "Assessing Machine Learning Techniques for Predicting Banking Crises in India," JRFM, MDPI, vol. 17(4), pages 1-16, March.
    3. Gulati, Rachita & Singh, Nirmal & Kumar, Sunil & Duppati, Geeta, 2023. "Bank stability in the Indian subcontinent region: Evolution and determinants," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).

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    More about this item

    Keywords

    Banks; India; Economic stability; Statistical analysis;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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