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A simple index of banking fragility: application to Indian data

  • Saibal Ghosh

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.

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Article provided by Emerald Group Publishing in its journal Journal of Risk Finance.

Volume (Year): 12 (2011)
Issue (Month): 2 (February)
Pages: 112-120

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Handle: RePEc:eme:jrfpps:v:12:y:2011:i:2:p:112-120
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References listed on IDEAS
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  1. Barry Eichengreen & Carlos Arteta, 2001. "Banking Crises in Emerging Markets: Presumptions and Evidence," Macroeconomics 0012012, EconWPA.
  2. Hutchison, M. & McDill, K., 1998. "Are All Banking Crises Alike? The Japanese Experience in International Comparison," Papers 99-02, Economisch Institut voor het Midden en Kleinbedrijf-.
  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. 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.
  5. repec:fip:fedgsq:y:2008:x:65 is not listed on IDEAS
  6. Graciela L. Kaminsky & Carmen M. Reinhart, 1996. "The twin crises: the causes of banking and balance-of-payments problems," International Finance Discussion Papers 544, Board of Governors of the Federal Reserve System (U.S.).
  7. 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.
  8. International Monetary Fund, 1998. "Leading Indicators of Banking Crises; Was Asia Different?," IMF Working Papers 98/91, International Monetary Fund.
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