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Monitoring Banking Sector Fragility: A Multivariate Logit Approach

  • Enrica Detragiache
  • Asli Demirgüç-Kunt

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.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 99/147.

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Length: 27
Date of creation: 01 Oct 1999
Date of revision:
Handle: RePEc:imf:imfwpa:99/147
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  1. 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.
  2. 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.
  3. Eichengreen, Barry & Rose, Andrew K, 1998. "Staying Afloat When the Wind Shifts: External Factors and Emerging-Market Banking Crises," CEPR Discussion Papers 1828, C.E.P.R. Discussion Papers.
  4. Michael Gavin & Ricardo Hausmann, 1996. "The Roots of Banking Crises: The Macroeconomic Context," IDB Publications (Working Papers) 5819, Inter-American Development Bank.
  5. Patrick Honohan, 1997. "Banking system failures in developing and transition countries: Diagnosis and predictions," BIS Working Papers 39, Bank for International Settlements.
  6. Morris Goldstein & John Hawkins, 1998. "The Origin of the Asian Financial Turmoil," RBA Research Discussion Papers rdp9805, Reserve Bank of Australia.
  7. 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.).
  8. International Monetary Fund, 1998. "Leading Indicators of Banking Crises: Was Asia Different?," IMF Working Papers 98/91, International Monetary Fund.
  9. Frederic S. Mishkin, 1996. "Understanding Financial Crises: A Developing Country Perspective," NBER Working Papers 5600, National Bureau of Economic Research, Inc.
  10. 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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