Assessing the Risk of Banking Crises – Revisited

18 Pages Posted: 25 Jul 2012

See all articles by Claudio E. V. Borio

Claudio E. V. Borio

Bank for International Settlements (BIS) - Research and Policy Analysis

Mathias Drehmann

Bank for International Settlements (BIS)

Date Written: March 2, 2009

Abstract

Historically, unusually strong increases in credit and asset prices have tended to precede banking crises. Could the current crisis have been anticipated by exploiting this relationship? We explore this question by assessing the out-of-sample performance of leading indicators of banking system distress developed in previous work, also extended to incorporate explicitly property prices. We find that they are fairly successful in providing a signal for several banking systems currently in distress, including that of the United States. We also consider the complications that arise in calibrating the indicators as a result of cross-border exposures, so prominent in the current episode.

JEL Classification: E37, E44, F34, G21

Suggested Citation

Borio, Claudio E.V. and Drehmann, Mathias, Assessing the Risk of Banking Crises – Revisited (March 2, 2009). BIS Quarterly Review, March 2009, Available at SSRN: https://ssrn.com/abstract=1513316

Claudio E.V. Borio (Contact Author)

Bank for International Settlements (BIS) - Research and Policy Analysis ( email )

CH-4002 Basel, Basel-Stadt
Switzerland

Mathias Drehmann

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

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