Banking Stability Measures

56 Pages Posted: 11 Mar 2009

See all articles by Miguel Segoviano Basurto

Miguel Segoviano Basurto

International Monetary Fund (IMF) - Monetary and Financial Systems Department

Charles Goodhart

London School of Economics & Political Science (LSE) - Financial Markets Group

Date Written: Janurary 2009

Abstract

This paper defines a set of banking stability measures which take account of distress dependence among the banks in a system, thereby providing a set of tools to analyze stability from complementary perspectives by allowing the measurement of (i) common distress of the banks in a system, (ii) distress between specific banks, and (iii) distress in the system associated with a specific bank. Our approach defines the banking system as a portfolio of banks and infers the system's multivariate density (BSMD) from which the proposed measures are estimated. The BSMD embeds the banks' default inter-dependence structure that captures linear and non-linear distress dependencies among the banks in the system, and its changes at different times of the economic cycle. The BSMD is recovered using the CIMDO-approach, a new approach that in the presence of restricted data, improves density specification without explicitly imposing parametric forms that, under restricted data sets, are difficult to model. Thus, the proposed measures can be constructed from a very limited set of publicly available data and can be provided for a wide range of both developing and developed countries.

Keywords: Financial stability, Financial risk, Banking systems, Data analysis, Economic models

Suggested Citation

Segoviano Basurto, Miguel and Goodhart, Charles A.E., Banking Stability Measures (Janurary 2009). IMF Working Paper No. 09/4, Available at SSRN: https://ssrn.com/abstract=1356460

Miguel Segoviano Basurto (Contact Author)

International Monetary Fund (IMF) - Monetary and Financial Systems Department ( email )

Washington, DC
United States

Charles A.E. Goodhart

London School of Economics & Political Science (LSE) - Financial Markets Group ( email )

Houghton Street
London WC2A 2AE
United Kingdom
0207 955 7555 (Phone)
0207 242 1006 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
1,525
Abstract Views
5,081
Rank
23,754
PlumX Metrics