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Monitoring Banking Sector Fragility: A Multivariate Logit Approach

  • Demirguc, Asli
  • Detragiache, Enrica

This article explores how a multivariate logit model of the probability of a banking crisis can be used to monitor banking sector fragility. The proposed approach relies on readily available data, and the fragility assessment has a clear interpretation based on in-sample statistics. The model has better in-sample performance than currently available alternatives, and the monitoring system can be tailored to fit the preferences of decisionmakers regarding type I and type II errors. The framework can be useful as a preliminary screen to economize on precautionary costs. Copyright 2000 by Oxford University Press.

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File URL: http://www.worldbank.org/research/journals/wber/revmay00/pdf/Article3.pdf
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Article provided by World Bank Group in its journal World Bank Economic Review.

Volume (Year): 14 (2000)
Issue (Month): 2 (May)
Pages: 287-307

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Handle: RePEc:oup:wbecrv:v:14:y:2000:i:2:p:287-307
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  1. Eichengreen, Barry & Rose, Andrew K, 1998. "Staying Afloat When the Wind Shifts: External Factors and Emerging-Market Banking Crises," CEPR Discussion Papers 1828, C.E.P.R. Discussion Papers.
  2. Reinhart, Carmen & Kaminsky, Graciela, 1999. "The twin crises: The causes of banking and balance of payments problems," MPRA Paper 14081, University Library of Munich, Germany.
  3. Jeffrey D. Sachs & Aaron Tornell & Andrés Velasco, 1996. "Financial Crises in Emerging Markets: The Lessons from 1995," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 147-216.
  4. Patrick Honohan, 1997. "Banking system failures in developing and transition countries: Diagnosis and predictions," BIS Working Papers 39, Bank for International Settlements.
  5. Graciela L. Kaminsky, 1998. "Currency and banking crises: the early warnings of distress," International Finance Discussion Papers 629, Board of Governors of the Federal Reserve System (U.S.).
  6. International Monetary Fund, 1998. "Leading Indicators of Banking Crises; Was Asia Different?," IMF Working Papers 98/91, International Monetary Fund.
  7. Asli Demirgüç-Kunt & Enrica Detragiache, 1998. "The Determinants of Banking Crises in Developing and Developed Countries," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 81-109, March.
  8. Morris Goldstein & John Hawkins, 1998. "The Origin of the Asian Financial Turmoil," RBA Research Discussion Papers rdp9805, Reserve Bank of Australia.
  9. Michael Gavin & Ricardo Hausmann, 1996. "The Roots of Banking Crises: The Macroeconomic Context," Research Department Publications 4026, Inter-American Development Bank, Research Department.
  10. Frederic S. Mishkin, 1996. "Understanding Financial Crises: A Developing Country Perspective," NBER Working Papers 5600, National Bureau of Economic Research, Inc.
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