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Banking Stability Measures

  • Charles Goodhart

    ()

  • Miguel Segoviano

    ()

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    The recent crisis underlined that proper estimation of distress-dependence amongst banks in a global system is essential for financial stability assessment. We present a set of banking stability measures embedding banks’ linear (correlation) and nonlinear distress-dependence, and their changes through the economic cycle, thereby allowing analysis of stability from three complementary perspectives: common distress in the system, distress between specific banks, and cascade effects associated with a specific bank. Our approach defines the banking system as a portfolio of banks and infers its multivariate density from which the proposed measures are estimated. These can be provided for developed and developing countries.

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    File URL: http://www.lse.ac.uk/fmg/workingPapers/discussionPapers/fmgdps/dp627.pdf
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    Paper provided by Financial Markets Group in its series FMG Discussion Papers with number dp627.

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    Date of creation: Jan 2009
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    Handle: RePEc:fmg:fmgdps:dp627
    Contact details of provider: Web page: http://www.lse.ac.uk/fmg/

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    1. Graciela Laura Kaminsky, 1997. "Leading Indicators of Currency Crises," IMF Working Papers 97/79, International Monetary Fund.
    2. Robert Flood & Nancy Marion, 1998. "Perspectives on the Recent Currency Crisis Literature," NBER Working Papers 6380, National Bureau of Economic Research, Inc.
    3. Berger, Allen N. & Udell, Gregory F., 1990. "Collateral, loan quality and bank risk," Journal of Monetary Economics, Elsevier, vol. 25(1), pages 21-42, January.
    4. Graciela L. Kaminsky & Carmen M. Reinhart, 1996. "The twin crises: the causes of banking and balance-of-payments problems," International Finance Discussion Papers 544, Board of Governors of the Federal Reserve System (U.S.).
    5. Sergio L. Schmukler & Graciela Laura Kaminsky, 2003. "Short-Run Pain, Long-Run Gain; The Effects of Financial Liberalization," IMF Working Papers 03/34, International Monetary Fund.
    6. Carmen M. Reinhart & Ioannis Tokatlidis, 2003. "Financial Liberalisation: The African Experience," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 12(Supplemen), pages 53-88, September.
    7. Charles Goodhart & Miguel A. Segoviano, 2004. "Basel and procyclicality: a comparison of the standardised and IRB approaches to an improved credit risk method," LSE Research Online Documents on Economics 24821, London School of Economics and Political Science, LSE Library.
    8. Maurice Obstfeld & Kenneth Rogoff, 1995. "The mirage of fixed exchange rates," Working Papers in Applied Economic Theory 95-08, Federal Reserve Bank of San Francisco.
    9. Obstfeld, Maurice, 1996. "Models of Currency Crises with Self-fulfilling Features," CEPR Discussion Papers 1315, C.E.P.R. Discussion Papers.
    10. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-25, August.
    11. Boris Hofmann, 2001. "The determinants of private sector credit in industrialised countries: do property prices matter?," BIS Working Papers 108, Bank for International Settlements.
    12. Merton, Robert C., 1973. "On the pricing of corporate debt: the risk structure of interest rates," Working papers 684-73., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    13. Caprio, Gerard Jr. & Klingebiel, Daniela, 1996. "Bank insolvencies : cross-country experience," Policy Research Working Paper Series 1620, The World Bank.
    14. Charles Goodhart & Boris Hofmann & Miguel Segoviano, 2004. "Bank Regulation and Macroeconomic Fluctuations," Oxford Review of Economic Policy, Oxford University Press, vol. 20(4), pages 591-615, Winter.
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