IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

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

  • E. Nur Ozkan-Gunay
  • Mehmed Ozkan

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.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.emeraldinsight.com/Insight/viewContentItem.do;jsessionid=040FFCBAFAB47C95D6C16DCC82D01E9D?contentType=Article&contentId=1634521
Download Restriction: Cannot be freely downloaded

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

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

Volume (Year): 8 (2007)
Issue (Month): 5 (November)
Pages: 465-480

as
in new window

Handle: RePEc:eme:jrfpps:v:8:y:2007:i:5:p:465-480
Contact details of provider: Web page: http://www.emeraldinsight.com

Order Information: Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
Web: http://emeraldgrouppublishing.com/products/journals/journals.htm?id=jrf Email:


No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

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: (Louise Lister)

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.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.