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Early warning indicators of banking crises: expanding the family

Author

Listed:
  • Aldasoro, Iñaki

    (Bank for International Settlements)

  • Borio, Claudio

    (Bank for International Settlements)

  • Drehmann, Mathias

    (Bank for International Settlements)

Abstract

Household and international debt (cross-border or in foreign currency) are a potential source of vulnerabilities that could eventually lead to banking crises. We explore this issue formally by assessing the performance of these debt categories as early warning indicators (EWIs) for systemic banking crises. We find that they do contain useful information. In fact, over the more recent subsample, for household and cross-border debt indicators the information is similar to that of the more commonly used aggregate credit variables regularly monitored by the Bank for International Settlements (BIS). Confirming previous work, combining these indicators with property prices improves performance. An analysis of current global conditions based on this richer information set points to the build-up of vulnerabilities in several countries.

Suggested Citation

  • Aldasoro, Iñaki & Borio, Claudio & Drehmann, Mathias, 2018. "Early warning indicators of banking crises: expanding the family," Journal of Financial Transformation, Capco Institute, vol. 48, pages 142-155.
    • Handle: RePEc:ris:jofitr:1621
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    as
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    More about this item

    Keywords

    early warning indicators; banking crises; credit gap; debt service ratio;
    All these keywords.

    JEL classification:

    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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