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Financial soundness indicators and financial crisis episodes

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  • Maria Kasselaki

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  • Athanasios Tagkalakis

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Abstract

This paper studies the links between of financial soundness indicators and financial crisis episodes controlling for several macroeconomic and fiscal variables in 20 OECD countries. We focus our attention on aggregate capital adequacy, asset quality and bank profitability indicators compiled by the IMF. Our key findings suggest that in times of severe financial crisis regulatory capital to risk weighted assets is increased (by about 0.5–0.6 % points; p.p.) to abide by regulatory and supervisory demands, non performing loans (NPLs) to total loans increase dramatically (by about 0.5–0.6 p.p.), but loan loss provisions lag behind NPLs (they fall by about 12.3–18.8 p.p.) and profitability deteriorates dramatically (returns on assets (equity) fall by about 0.3–0.4 (5.0–7.0) p.p.). Copyright Springer-Verlag Berlin Heidelberg 2014

Suggested Citation

  • Maria Kasselaki & Athanasios Tagkalakis, 2014. "Financial soundness indicators and financial crisis episodes," Annals of Finance, Springer, vol. 10(4), pages 623-669, November.
  • Handle: RePEc:kap:annfin:v:10:y:2014:i:4:p:623-669
    DOI: 10.1007/s10436-013-0233-6
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    File URL: http://hdl.handle.net/10.1007/s10436-013-0233-6
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    Citations

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    Cited by:

    1. Vasiliki Makri, 2016. "Towards an Investigation of Credit Risk Determinants in Eurozone Countries," Journal of Accounting and Management Information Systems, Faculty of Accounting and Management Information Systems, The Bucharest University of Economic Studies, vol. 15(1), pages 27-57, March.
    2. repec:prg:jnlpep:v:preprint:id:656:p:1-24 is not listed on IDEAS
    3. Purificación Parrado-Martínez & Antonio Partal-Ureña & Pilar Gómez Fernández-Aguado, 2016. "Banking Soundness Indicators and Sovereign Risk in Time of Crisis: The Case of the European Union," The World Economy, Wiley Blackwell, vol. 39(8), pages 1172-1193, August.

    More about this item

    Keywords

    Bank profitability; Capital adequacy; Asset quality; Financial crisis; G21; G28; O16;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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