Predicting European Banks Distress Events: Do Financial Information Producers Matter?

This article assesses the predictive power of sell-side stock analysts and credit rating agencies on the prevision of European banks distress events by introducing their respective disclosures into a logit early-warning system over the 2000-2020 period. As direct bank failures are rare in Europe, we construct a dataset accounting for direct failures and state and private sector interventions. The model is calibrated to minimize the loss of a decision-maker committed to prevent impending distress events and is estimated in a real-time fashion. We also control for bank- and macro-level data. We find both financial information producers' disclosures to display forward-looking informative and predictive performance on bank distress risk up to two years in advance.