Estimating probabilities of default for German savings banks and credit cooperatives
Savings banks and cooperative banks are important players in the German financial market. However, we know very little about their default risk, because these banks usually resolve financial distress within their own organizations, which means that outsiders cannot observe defaults. In this paper I use a new dataset that contains information about financial distress and financial strength of all German savings banks and cooperative banks. The Deutsche Bundesbank has gathered the data for microprudential supervision. Thus, the data have never before been exploited for statistical risk assessment. I use the data to identify the main drivers of savings banks’ and cooperative banks’ risk and to detect structural differences between the two groups. To do so, I estimate a default prediction model. I also analyze the impact of macroeconomic information for forecasting banks’ defaults. Recent findings for the U.S. have cast some doubt on the usefulness of macroeconomic information for banks’ risk assessment. Contrary to recent literature, I find that macroeconomic information significantly improves default forecasts.
Volume (Year): 58 (2006)
Issue (Month): 3 (July)
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