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Determinants of Banking System Fragility: A Case Study of Mexico

Author

Listed:
  • Brenda González-Hermosillo

    (International Monetary Fund)

  • Ceyla PazarbaÅŸioÄŸlu

    (International Monetary Fund)

  • Robert Billings

    (International Monetary Fund)

Abstract

This paper tests empirically the proposition that bank fragility is determined by bank-specific factors, macroeconomic conditions, and potential contagion effects. The methodology allows the variables that determine bank failure to differ from those that influence banks' time to failure (or survival rate). Based on the indicators of fragility of individual banks, we construct an index of fragility for the banking system. The framework is applied to the Mexican financial crisis that began in 1994. For Mexico, bank-specific variables and contagion effects explain the likelihood, whereas macroeconomic variables largely determine the timing, of bank failure.

Suggested Citation

  • Brenda González-Hermosillo & Ceyla PazarbaÅŸioÄŸlu & Robert Billings, 1997. "Determinants of Banking System Fragility: A Case Study of Mexico," IMF Staff Papers, Palgrave Macmillan, vol. 44(3), pages 295-314, September.
  • Handle: RePEc:pal:imfstp:v:44:y:1997:i:3:p:295-314
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    JEL classification:

    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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