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A Macroprudential Framework for the Early Detection of Banking Problems in Emerging Economies


  • Loser, Claudio M.

    () (Centennial Group)

  • Kiguel, Miguel A.

    () (Centennial Group)

  • Mermelstein, David

    () (Centennial Group)


This paper develops an analytical framework that can be used to anticipate problems in the banking system and enable supervisors to take mitigating actions at an early stage. This paper has two components. First, it develops an early warning indicator that is intended to capture a number of the systemic risks that can affect the banking system as a whole. Second, it develops a methodology to detect problems at the individual bank level in an effort to identify those firms with financial vulnerabilities. For the systemic component of our methodology, the final output is a banking system vulnerability index to facilitate bank monitoring tasks, as well as some disaggregated subcomponents that are intended to display the relative importance of the different risks (e.g., liquidity, currency, and interest rate risks). Regarding the assessment of the soundness of individual institutions, the paper uses a methodology based on cluster analysis that incorporates the results of the previous framework. There is an empirical application of the systemic component that is based on the 2001 Argentine banking crisis. It shows that the proposed vulnerability indicator started to increase steadily beginning in 1999, following 2 years in which it had remained flat, and it finally peaked in mid-2001, which was just before the onset of the crisis.

Suggested Citation

  • Loser, Claudio M. & Kiguel, Miguel A. & Mermelstein, David, 2010. "A Macroprudential Framework for the Early Detection of Banking Problems in Emerging Economies," Working Papers on Regional Economic Integration 44, Asian Development Bank.
  • Handle: RePEc:ris:adbrei:0044

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    References listed on IDEAS

    1. 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.
    2. Graciela L. Kaminsky, 2003. "Varieties of Currency Crises," NBER Working Papers 10193, National Bureau of Economic Research, Inc.
    3. Blejer, Mario I. & Feldman, Ernesto V. & Feltenstein, Andrew, 2002. "Exogenous shocks, contagion, and bank soundness: a macroeconomic framework," Journal of International Money and Finance, Elsevier, vol. 21(1), pages 33-52, February.
    4. Reinhart, Carmen M. & Rogoff, Kenneth S., 2013. "Banking crises: An equal opportunity menace," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4557-4573.
    5. Mizuho Kida, 2008. "A macro stress testing model with feedback effects," Reserve Bank of New Zealand Discussion Paper Series DP2008/08, Reserve Bank of New Zealand.
    6. David A. Mermelstein, 2017. "Hacia un indicador de vulnerabilidad bancaria basado en pruebas de estrés," CEMA Working Papers: Serie Documentos de Trabajo. 610, Universidad del CEMA.
    7. Konstantijn Maes, 2004. "Interest Rate Risk in the Belgian Banking Sector," Financial Stability Review, National Bank of Belgium, vol. 2(1), pages 157-179, June.
    8. Mathias Drehmann & Steffen Sorensen & Marco Stringa, 2007. "Integrating credit and interest rate risk: A theoretical framework and an application to banks' balance sheets," Money Macro and Finance (MMF) Research Group Conference 2006 151, Money Macro and Finance Research Group.
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    Cited by:

    1. Vedev, A., 2013. "Mega-Regulator for Russia as an Institutional Problem and an Intellectual Challenge," Journal of the New Economic Association, New Economic Association, vol. 19(3), pages 139-143.

    More about this item


    Banks; stress testing; banking crises; banking regulation; banking supervision; early warning systems;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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