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Leading indicators of systemic banking crises: Finland in a panel of EU countries

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  • Lainà, Patrizio
  • Nyholm, Juho
  • Sarlin, Peter

Abstract

This paper investigates leading indicators of systemic banking crises in a panel of 11 EU countries, with a particular focus on Finland. We use quarterly data from 1980Q1 to 2013Q2, in order to create a large number of macro-financial indicators, as well as their various transformations. We make use of univariate signal extraction and multivariate logit analysis to assess what factors lead the occurrence of a crisis and with what horizon the indicators lead a crisis. We find that loans-to-deposits and house price growth are the best leading indicators. Growth rates and trend deviations of loan stock variables also yield useful signals of impending crises. While the optimal lead horizon is three years, indicators generally perform well with lead times ranging from one to four years. We also tap into unique long time-series of the Finnish economy to perform historical explorations into macro-financial vulnerabilities.

Suggested Citation

  • Lainà, Patrizio & Nyholm, Juho & Sarlin, Peter, 2014. "Leading indicators of systemic banking crises: Finland in a panel of EU countries," Research Discussion Papers 14/2014, Bank of Finland.
  • Handle: RePEc:bof:bofrdp:2014_014
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    Cited by:

    1. Zhi-Qiang Jiang & Gang-Jin Wang & Askery Canabarro & Boris Podobnik & Chi Xie & H. Eugene Stanley & Wei-Xing Zhou, 2016. "Short term prediction of extreme returns based on the recurrence interval analysis," Papers 1610.08230, arXiv.org.
    2. Jan Bruha & Michal Hlavacek & Lubos Komarek, 2017. "House Prices and Household Consumption: The Case of the Czech Republic," Working Papers 2017/11, Czech National Bank, Research Department.
    3. Kalatie, Simo & Laakkonen, Helinä & Tölö, Eero, 2015. "Indicators used in setting the countercyclical capital buffer," Research Discussion Papers 8/2015, Bank of Finland.
    4. repec:ijc:ijcjou:y:2018:q:1:a:2 is not listed on IDEAS
    5. Ons Jedidi & Jean Sébastien Pentecote, 2015. "Robust Signals for Banking Crises," Economics Bulletin, AccessEcon, vol. 35(3), pages 1617-1629.
    6. Koong, Seow Shin & Law, Siong Hook & Ibrahim, Mansor H., 2017. "Credit expansion and financial stability in Malaysia," Economic Modelling, Elsevier, vol. 61(C), pages 339-350.
    7. Crowley, Patrick & Hughes Hallett, Andrew, 2014. "Volatility transfers between cycles: A theory of why the "great moderation" was more mirage than moderation," Research Discussion Papers 23/2014, Bank of Finland.
    8. Tomas Havranek & Mojmir Hampl, 2017. "Should Inflation Measures Used by Central Banks Incorporate House Prices? The Czech National Bank's Approach," Research and Policy Notes 2017/01, Czech National Bank, Research Department.
    9. CIMPOERU Smaranda, 2016. "European Economies Facing The Global Financial Crisis: Are Emerging Economies More Vulnerable Than Advanced Ones?," Revista Economica, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 68(2), pages 69-85, September.
    10. repec:eee:finsta:v:35:y:2018:i:c:p:226-241 is not listed on IDEAS
    11. Markus Holopainen & Peter Sarlin, 2015. "Toward robust early-warning models: A horse race, ensembles and model uncertainty," Papers 1501.04682, arXiv.org, revised Apr 2016.
    12. Savas Papadopoulos & Pantelis Stavroulias & Thomas Sager, 2016. "Systemic early warning systems for EU15 based on the 2008 crisis," Working Papers 202, Bank of Greece.
    13. Mojmir Hampl & Tomas Havranek, 2017. "Should Inflation Measures Used by Central Banks Incorporate House Prices? The Czech Approach," Working Papers IES 2017/12, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Jul 2017.
    14. Ons Jedidi & Jean-Sébastien Pentecôte, 2015. "Prédire les crises bancaires : un système d’alerte robuste," Revue française d'économie, Presses de Sciences-Po, vol. 0(3), pages 189-225.
    15. Peltonen, Tuomas A. & Sarlin, Peter & Piloiu, Andreea, 2015. "Network linkages to predict bank distress," Working Paper Series 1828, European Central Bank.
    16. repec:bis:bisbpc:94-11 is not listed on IDEAS
    17. repec:spr:weltar:v:154:y:2018:i:1:d:10.1007_s10290-017-0294-0 is not listed on IDEAS

    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F30 - International Economics - - International Finance - - - General
    • G01 - Financial Economics - - General - - - Financial Crises
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation

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