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Early Warning Indicators for the German Banking System: A Macroprudential Analysis

Author

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  • Thomas Kick

    () (Deutsche Bundesbank, Zentralbereich Banken und Aufsicht, Wilhelm-Epstein-Straße 14, 60431 Frankfurt)

  • Nadya Jahn

    () (Finance Center Münster, Institut für Kreditwesen, Universität Münster, Universitätsstraße 14–16, 48143 Münster)

Abstract

In this paper, we introduce a continuous and forward-looking stability indicator for the banking system based on information on all financial institutions in Germany between 1995 and 2010. Explaining this indicator by means of panel regression techniques, we identify significant macroprudential early warning indicators (such as asset price indicators, leading indicators for the business cycle and monetary indicators) and spillover effects. International spillovers play a significant role across all banking sectors, whereas regional spillovers and the credit-to- GDP ratio are more important for cooperative banks and less relevant for commercial banks.

Suggested Citation

  • Thomas Kick & Nadya Jahn, 2014. "Early Warning Indicators for the German Banking System: A Macroprudential Analysis," Credit and Capital Markets, Credit and Capital Markets, vol. 47(1), pages 5-47.
  • Handle: RePEc:kuk:journl:v:47:y:2014:i:1:p:5-47
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    References listed on IDEAS

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    1. Jürgen Von Hagen & Tai-Kuang Ho, 2007. "Money Market Pressure and the Determinants of Banking Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(5), pages 1037-1066, August.
    2. Stefano Puddu, 2013. "Optimal Weights and Stress Banking Indexes," IRENE Working Papers 13-02, IRENE Institute of Economic Research.
    3. Philip R. Lane & Peter McQuade, 2014. "Domestic Credit Growth and International Capital Flows," Scandinavian Journal of Economics, Wiley Blackwell, pages 218-252.
    4. Bekaert, Geert & Hoerova, Marie & Lo Duca, Marco, 2013. "Risk, uncertainty and monetary policy," Journal of Monetary Economics, Elsevier, pages 771-788.
    5. Kick, Thomas & Koetter, Michael, 2007. "Slippery slopes of stress: Ordered failure events in German banking," Journal of Financial Stability, Elsevier, pages 132-148.
    6. Segoviano, Miguel A. & Goodhart, Charles, 2009. "Banking stability measures," LSE Research Online Documents on Economics 24416, London School of Economics and Political Science, LSE Library.
    7. Elke Hanschel & Pierre Monnin, 2005. "Measuring and forecasting stress in the banking sector: evidence from Switzerland," BIS Papers chapters,in: Bank for International Settlements (ed.), Investigating the relationship between the financial and real economy, volume 22, pages 431-49 Bank for International Settlements.
    8. Asli Demirgüç-Kunt & Enrica Detragiache, 2005. "Cross-Country Empirical Studies of Systemic Bank Distress: A Survey," National Institute Economic Review, National Institute of Economic and Social Research, vol. 192(1), pages 68-83, April.
    9. Kick, Thomas & Koetter, Michael, 2007. "Slippery slopes of stress: Ordered failure events in German banking," Journal of Financial Stability, Elsevier, pages 132-148.
    10. Illing, Mark & Liu, Ying, 2006. "Measuring financial stress in a developed country: An application to Canada," Journal of Financial Stability, Elsevier, pages 243-265.
    11. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
    12. Miroslav Misina & Greg Tkacz, 2008. "Credit, Asset Prices, and Financial Stress in Canada," Staff Working Papers 08-10, Bank of Canada.
    13. Koetter, Michael & Poghosyan, Tigran, 2008. "Real estate markets and bank distress," Discussion Paper Series 2: Banking and Financial Studies 2008,18, Deutsche Bundesbank, Research Centre.
    14. Behr, Andreas & Kamp, Andreas & Memmel, Christoph & Pfingsten, Andreas, 2007. "Diversification and the banks' risk-return-characteristics: evidence from loan portfolios of German banks," Discussion Paper Series 2: Banking and Financial Studies 2007,05, Deutsche Bundesbank, Research Centre.
    15. Heider, F. & Hoerova, M. & Holthausen, C., 2009. "Liquidity Hoarding and Interbank Market Spreads : The Role of Counterparty Risk," Discussion Paper 2009-40 S, Tilburg University, Center for Economic Research.
    16. De Graeve, F. & Kick, T. & Koetter, M., 2008. "Monetary policy and financial (in)stability: An integrated micro-macro approach," Journal of Financial Stability, Elsevier, pages 205-231.
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    Citations

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    Cited by:

    1. Kick, Thomas & Nehring, Inge & Schertler, Andrea, 2017. "Do all new brooms sweep clean? Evidence for outside bank appointments," Journal of Banking & Finance, Elsevier, vol. 84(C), pages 135-151.
    2. repec:kuk:journl:v:50:y:2017:i:3:p:299-336 is not listed on IDEAS
    3. Kick, Thomas & Prieto, Esteban, 2013. "Bank risk taking and competition: Evidence from regional banking markets," Discussion Papers 30/2013, Deutsche Bundesbank.
    4. Dr. Michael Sigmund & Dr. Ingrid Stein, 2017. "What predicts Financial (In)Stability? A Bayesian Approach," Credit and Capital Markets, Credit and Capital Markets, pages 299-336.
    5. Olivier de Bandt & Jean-Cyprien Héam & Claire Labonne & Santiago Tavolaro, 2015. "La mesure du risque systémique après la crise financière," Revue économique, Presses de Sciences-Po, vol. 66(3), pages 481-500.
    6. O. de Bandt & J.-C. Héam & C. Labonne & S. Tavolaro, 2013. "Measuring Systemic Risk in a Post-Crisis World," Débats économiques et financiers 6, Banque de France.

    More about this item

    Keywords

    Early Warning Indicators; Banking System Stability Indicator; Spillover Effects; Panel Regression Techniques;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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