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Monitoring Banking Sector Fragility: A Multivariate Logit Approach

Author

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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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