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Design of Early Warning System for Predicting Exposure to Failure Time of Banks

Author

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  • Ahmadyan , Azam

    (Researcher in Monetary and Banking Research Institute of Iran)

Abstract

The collapse and failure of a bank could have devastating consequences to the entire banking system and widespread repercussion effect on other banks and the economy as a whole. The main objective of this paper is to design an early warning system for predicting failure time of banks by type of ownership and investigating the effects of the leading indicators in predicting bankruptcy of the Iran's banks using Kaplan-Meier model and Cox hazard model in survival analysis framework. For this purpose, banks financial statement over the period of 2001-2014 were used. The study showed that the survival of Iranian banks Influenced by 13 leading variable that banking supervisors can use these indices for identifying high-risk banks. The results have shown that Private banks have been less shelf life and the cost indices, credit risk and liquidity risk are the most important factors affecting the time of bank’s insolvency.

Suggested Citation

  • Ahmadyan , Azam, 2016. "Design of Early Warning System for Predicting Exposure to Failure Time of Banks," Quarterly Journal of Applied Theories of Economics, Faculty of Economics, Management and Business, University of Tabriz, vol. 2(4), pages 119-144, March.
    • Handle: RePEc:ris:qjatoe:0029
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    File URL: http://ecoj.tabrizu.ac.ir/article_4737_b04bcb2342fa2763b2cae028071b3e1b.pdf
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    More about this item

    Keywords

    Kaplan-Meier; Cox hazard model; Survival analysis; Insolvency; Early Warning System;
    All these keywords.

    JEL classification:

    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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