How Well Do Aggregate Bank Ratios Identify Banking Problems?

IMF Working Paper No. 07/275

Journal of Financial Stability, Vol. 6, pp. 130-144

42 Pages Posted: 21 Dec 2007

See all articles by Klaus Schaeck

Klaus Schaeck

University of Bristol

Martin Čihák

International Monetary Fund (IMF)

Date Written: December 2007


The paper provides an empirical analysis of aggregate banking system ratios during systemic banking crises. Drawing upon a wide cross-country dataset, we utilize parametric and nonparametric tests to assess the power of these ratios to discriminate between sound and unsound banking systems. We also estimate a duration model to investigate whether the ratios help determine the timing of a banking crisis. Despite some weaknesses in the available data, our findings offer initial evidence that some indicators are precursors for the likelihood and timing of systemic banking problems. Nevertheless, we caution against sole reliance on these indicators and advocate supplementing them with other tools and techniques.

Keywords: Banks, Financial crisis, Financial soundness indicators, Economic models

Suggested Citation

Schaeck, Klaus and Cihak, Martin, How Well Do Aggregate Bank Ratios Identify Banking Problems? (December 2007). IMF Working Paper No. 07/275. Available at SSRN:

Klaus Schaeck

University of Bristol ( email )

University of Bristol,
Senate House, Tyndall Avenue
Bristol, BS8 ITH
United Kingdom

Martin Cihak (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street N.W.
Washington, DC 20431
United States

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