IDEAS home Printed from https://ideas.repec.org/a/eme/jrfpps/v8y2007i5p465-480.html
   My bibliography  Save this article

Prediction of bank failures in emerging financial markets: an ANN approach

Author

Listed:
  • E. Nur Ozkan-Gunay
  • Mehmed Ozkan

Abstract

Purpose - The recent financial crises in the world have brought attention to the need for a new international financial architecture which rests on crisis prevention, crisis prediction and crisis management. It is therefore both desirable and vital to explore new predictive techniques for providing early warnings to regulatory agencies. The purpose of this study is to propose a new technique to prevent future crises, with reference to the last banking crises in Turkey. Design/methodology/approach - ANN is utilized as an inductive algorithm in discovering predictive knowledge structures in financial data and used to explain previous bank failures in the Turkish banking sector as a special case of EFMs (emerging financial markets). Findings - The empirical results indicate that ANN is proved to differentiate patterns or trends in financial data. Most of the bank failures could be predicted long before, with the utilization of an ANN classification approach, but more importantly it could be proposed to detect early warning signals of potential failures, as in the case of the Turkish banking sector. Practical implications - The regulatory agencies could use ANN as an alternative method to predict and prevent future systemic banking crises in order to minimize the cost to the economy. Originality/value - This paper reveals that the ANN approach can be proposed as a promising method of evaluating financial conditions in terms of predictive accuracy, adaptability and robustness, and as an alternative early warning method that can be used along with the most common alternatives such as CAMEL, financial ratio and peer group analysis, comprehensive bank risk assessment, and econometric models.

Suggested Citation

  • E. Nur Ozkan-Gunay & Mehmed Ozkan, 2007. "Prediction of bank failures in emerging financial markets: an ANN approach," Journal of Risk Finance, Emerald Group Publishing, vol. 8(5), pages 465-480, November.
  • Handle: RePEc:eme:jrfpps:v:8:y:2007:i:5:p:465-480
    as

    Download full text from publisher

    File URL: http://www.emeraldinsight.com/10.1108/15265940710834753?utm_campaign=RePEc&WT.mc_id=RePEc
    Download Restriction: Access to full text is restricted to subscribers

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Owen P. Hall Jr. & Darrol J. Stanley, 2012. "A comparative modelling analysis of firm performance," International Journal of Data Analysis Techniques and Strategies, Inderscience Enterprises Ltd, vol. 4(1), pages 43-56.
    2. Zuzana Fungacova & Rima Turk & Laurent Weill, 2015. "High Liquidity Creation and Bank Failures," IMF Working Papers 15/103, International Monetary Fund.
    3. José Eduardo Gómez-González & Inés Paola Orozco Hinojosa, 2010. "Un Modelo de alerta temprana para el sistema financiero colombiano," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE, vol. 28(62), pages 124-147, June.
    4. Fungáčová, Zuzana & Turk-Ariss, Rima & Weill, Laurent, 2013. "Does excessive liquidity creation trigger bank failures?," BOFIT Discussion Papers 2/2013, Bank of Finland, Institute for Economies in Transition.
    5. Gao, Jianbo & Hu, Jing, 2014. "Financial crisis, Omori's law, and negative entropy flow," International Review of Financial Analysis, Elsevier, vol. 33(C), pages 79-86.
    6. BATRANCEA, Ioan & STOIA, Ioan & CSEGEDI, Sandor & MOSCVICIOV, Andrei & NICHITA, Anca & ANDONE, Diana, 2013. "Econometric Model For Default Risk In Banks," Academica Science Journal, Economica Series, Dimitrie Cantemir University, Faculty of Economical Science, vol. 1(2), pages 35-43, May.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eme:jrfpps:v:8:y:2007:i:5:p:465-480. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Virginia Chapman). General contact details of provider: http://www.emeraldinsight.com .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.