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Risk Profile Indicators and Spanish Banks’ Probability of Default from a Regulatory Approach

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  • Pilar Gómez-Fernández-Aguado

    () (Department of Financial Economics and Accounting, University of Jaén, 23071 Jaén, Spain)

  • Purificación Parrado-Martínez

    () (Department of Financial Economics and Accounting, University of Jaén, 23071 Jaén, Spain)

  • Antonio Partal-Ureña

    () (Department of Financial Economics and Accounting, University of Jaén, 23071 Jaén, Spain)

Abstract

This paper analyses the relationships between the traditional bank risk profile indicators and a new measure of banks’ probability of default that considers the Basel regulatory framework. First, based on the SYstemic Model of Bank Originated Losses (SYMBOL), we calculated the individual probabilities of default (PD) of a representative sample of Spanish credit institutions during the period of 2008–2016. Then, panel data regressions were estimated to explore the influence of the risk indicators on the PD. Our findings on the Spanish banking system could be important to regulatory and supervisory authorities. First, the PD based on the SYMBOL model could be used to analyse bank risk from a regulatory approach. Second, the results might be useful for designing new regulations focused on the key factors that affect the banks’ probability of default. Third, our findings reveal that the emphasis on regulation and supervision should differ by type of entity.

Suggested Citation

  • Pilar Gómez-Fernández-Aguado & Purificación Parrado-Martínez & Antonio Partal-Ureña, 2018. "Risk Profile Indicators and Spanish Banks’ Probability of Default from a Regulatory Approach," Sustainability, MDPI, Open Access Journal, vol. 10(4), pages 1-16, April.
  • Handle: RePEc:gam:jsusta:v:10:y:2018:i:4:p:1259-:d:142120
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    More about this item

    Keywords

    probability of default; bank risk; banking regulation; SYMBOL; financial stability;
    All these keywords.

    JEL classification:

    • Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics
    • Q0 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General
    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
    • Q3 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products

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