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http://ssrn.com/abstract=884344
 
 

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Extracting Leading Indicators of Bank Fragility from Market Prices - Estonia Focus


Yu-Fu Chen


University of Dundee - Department of Economic Studies

Michael Funke


Hamburg University, Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Kadri Männasoo


Bank of Estonia

January 2006

CESifo Working Paper No. 1647

Abstract:     
Banking reform has proved to be one of the most problematic elements of economic transition in central and Eastern Europe. Therefore the paper considers the development of the Estonian banking sector and derives individual banks' fragility scores during transition. To this end we use option-based tools and equity prices to estimate distance-to-default measures of banks' distress probabilities. Overall, the results suggest that market indicators are moderately useful for anticipating future financial distress and rating changes in transition economies. The implication for an effective supervisory framework is to use a plurality of risk scores when assessing bank vulnerability.

Number of Pages in PDF File: 30

Keywords: banking, financial stability, bank fragility, options, Estonia

JEL Classification: E44, E58, G21

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Date posted: February 16, 2006  

Suggested Citation

Chen, Yu-Fu and Funke, Michael and Männasoo, Kadri, Extracting Leading Indicators of Bank Fragility from Market Prices - Estonia Focus (January 2006). CESifo Working Paper No. 1647. Available at SSRN: http://ssrn.com/abstract=884344

Contact Information

Yu-Fu Chen
University of Dundee - Department of Economic Studies ( email )
Dundee DD1 4HN, Scotland
United Kingdom
+44 1382 344 383 (Phone)
+44 1382 344 691 (Fax)
Michael Funke (Contact Author)
Hamburg University, Department of Economics ( email )
Von-Melle-Park 5
Hamburg, 20146
Germany
CESifo (Center for Economic Studies and Ifo Institute)
Poschinger Str. 5
Munich, DE-81679
Germany
Kadri Männasoo
Bank of Estonia ( email )
Estonia Building 13
15095 Tallinn
Estonia
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