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Monitoring Banking Sector Fragility: A Multivariate Logit Approach

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  • Ms. Enrica Detragiache
  • Asli Demirgüç-Kunt

Abstract

This paper explores how a multivariate logit empirical model of banking crisis probabilities can be used to monitor banking sector fragility. The proposed approach relies on readily available data, and the fragility assessment has a clear interpretation based on in-sample statistics. The model has better in-sample performance than currently available alternatives, and the monitoring system can be tailored to fit the preferences of the decision maker regarding type I and type II errors. The framework can be useful as a preliminary screen to economize on precautionary costs.

Suggested Citation

  • Ms. Enrica Detragiache & Asli Demirgüç-Kunt, 1999. "Monitoring Banking Sector Fragility: A Multivariate Logit Approach," IMF Working Papers 1999/147, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:1999/147
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    References listed on IDEAS

    as
    1. Michael Gavin & Ricardo Hausmann, 1996. "The Roots of Banking Crises: The Macroeconomic Context," Research Department Publications 4026, Inter-American Development Bank, Research Department.
    2. repec:idb:wpaper:318 is not listed on IDEAS
    3. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
    4. Jeffrey D. Sachs & Aaron Tornell & Andrés Velasco, 1996. "Financial Crises in Emerging Markets: The Lessons from 1995," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 147-216.
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    6. P. Honohan, 2000. "Banking System Failures in Developing and Transition Countries: Diagnosis and Prediction," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 29(1), pages 83-109, February.
    7. Calvo, Guillermo A, 1996. "Capital Flows and Macroeconomic Management: Tequila Lessons," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 1(3), pages 207-223, July.
    8. Graciela L. Kaminsky, 1998. "Currency and banking crises: the early warnings of distress," International Finance Discussion Papers 629, Board of Governors of the Federal Reserve System (U.S.).
    9. International Monetary Fund, 1998. "Leading Indicators of Banking Crises: Was Asia Different?," IMF Working Papers 1998/091, International Monetary Fund.
    10. Frederic S. Mishkin, 1996. "Understanding Financial Crises: A Developing Country Perspective," NBER Working Papers 5600, National Bureau of Economic Research, Inc.
    11. Barry Eichengreen & Andrew K. Rose, 1998. "Staying Afloat When the Wind Shifts: External Factors and Emerging-Market Banking Crises," NBER Working Papers 6370, National Bureau of Economic Research, Inc.
    12. Asli Demirgüç-Kunt & Enrica Detragiache, 1998. "The Determinants of Banking Crises in Developing and Developed Countries," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 81-109, March.
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