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Banking Fragility in Colombia: An Empirical Analysis Based on Balance Sheets

  • Ignacio Lozano

    ()

  • Alexander Guarín

    ()

In this paper, we study the empirical relationship between credit funding sources and the financial vulnerability of the Colombian banking system. We propose a statistical model to measure and predict banking-fragility episodes associated with credit funding sources classified into retail deposits and wholesale funds. We compute the probability of financial fragility for both the aggregated banking system and the individual banks. Our approach performs a Bayesian averaging of estimated logit regression models with monthly balance sheet data between 1996 and 2013. The results show the increasing use of wholesale funding to support credit expansion is a potential source of financial fragility. Therefore, monitoring credit funding sources could provide an additional tool to warn against banking disruptions.

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File URL: http://www.banrep.gov.co/sites/default/files/publicaciones/archivos/be_813.pdf
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Paper provided by BANCO DE LA REPÚBLICA in its series BORRADORES DE ECONOMIA with number 011145.

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Length: 31
Date of creation: 12 Mar 2014
Date of revision:
Handle: RePEc:col:000094:011145
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  1. Carmen M. Reinhart & Vincent R. Reinhart, 2010. "After the Fall," NBER Working Papers 16334, National Bureau of Economic Research, Inc.
  2. H. Evren Damar & Césaire A. Meh & Yaz Terajima, 2010. "Leverage, Balance Sheet Size and Wholesale Funding," Working Papers 10-39, Bank of Canada.
  3. Rocco Huang & Lev Ratnovski, 2009. "The dark side of bank wholesale funding," Working Papers 09-3, Federal Reserve Bank of Philadelphia.
  4. Robin Greenwood & Augustin Landier & David Thesmar, 2012. "Vulnerable Banks," NBER Working Papers 18537, National Bureau of Economic Research, Inc.
  5. Claudio Borio, 2012. "The financial cycle and macroeconomics: What have we learnt?," BIS Working Papers 395, Bank for International Settlements.
  6. Itai Agur, 2013. "Wholesale Bank Funding, Capital Requirements and Credit Rationing," IMF Working Papers 13/30, International Monetary Fund.
  7. Òscar Jordà & Moritz HP. Schularick & Alan M. Taylor, 2011. "When Credit Bites Back: Leverage, Business Cycles, and Crises," NBER Working Papers 17621, National Bureau of Economic Research, Inc.
  8. Sweta Chaman Saxena & Valerie Cerra, 2005. "Growth Dynamics; The Myth of Economic Recovery," IMF Working Papers 05/147, International Monetary Fund.
  9. Pierre-Olivier Gourinchas & Rodrigo Valdes & Oscar Landerretche, 2001. "Lending Booms: Latin America and the World," ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION.
  10. Claessens, Stijn & Kose, Ayhan & Terrones, Marco E, 2011. "How Do Business and Financial Cycles Interact?," CEPR Discussion Papers 8396, C.E.P.R. Discussion Papers.
  11. Enrique G. Mendoza & Marco E. Terrones, 2008. "An Anatomy Of Credit Booms: Evidence From Macro Aggregates And Micro Data," NBER Working Papers 14049, National Bureau of Economic Research, Inc.
  12. Reinhart, Carmen & Goldstein, Morris & Kaminsky, Graciela, 2000. "Assessing financial vulnerability, an early warning system for emerging markets: Introduction," MPRA Paper 13629, University Library of Munich, Germany.
  13. Valentina Bruno & Hyun Song Shin, 2012. "Capital Flows and the Risk-Taking Channel of Monetary Policy," BIS Working Papers 400, Bank for International Settlements.
  14. S. P. Brooks & N. Friel & R. King, 2003. "Classical model selection via simulated annealing," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 65(2), pages 503-520.
  15. Bordo, Michael D. & Haubrich, Joseph G., 2010. "Credit crises, money and contractions: An historical view," Journal of Monetary Economics, Elsevier, vol. 57(1), pages 1-18, January.
  16. Schularick, Moritz & Taylor, Alan M., 2009. "Credit Booms Gone Bust: Monetary Policy, Leverage Cycles and Financial Crises, 1870-2008," CEPR Discussion Papers 7570, C.E.P.R. Discussion Papers.
  17. Jeffrey A. Frankel & George Saravelos, 2010. "Are Leading Indicators of Financial Crises Useful for Assessing Country Vulnerability? Evidence from the 2008-09 Global Crisis," NBER Working Papers 16047, National Bureau of Economic Research, Inc.
  18. Hume, Michael & Sentance, Andrew, 2009. "The global credit boom: challenges for macroeconomics and policy," Discussion Papers 27, Monetary Policy Committee Unit, Bank of England.
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