Predicting Banking Distress in the EMEAP Economies

Posted: 25 Feb 2011

See all articles by Jim Wong

Jim Wong

Hong Kong Monetary Authority

T. C. Wong

Hong Kong Monetary Authority - Research Department

Phyllis Leung

Hong Kong Monetary Authority - Research Department

Date Written: February, 24 2011

Abstract

This study develops a panel probit model to identify the leading indicators of banking distress and to estimate the banking distress probability for EMEAP economies. Macroeconomic fundamentals, currency crisis vulnerability, credit risks of banks and non-financial companies, asset price gaps, credit growth, and the occurrence of distress in other economies are found to be important leading indicators. The model is applied to stress test the Hong Kong banking sector. Simulation results suggest that compared with the period before the Asian financial crisis, the banking sector is currently more capable of withstanding shocks similar to those that occurred during the crisis.

Keywords: Asia Pacific economies, banking distress, early warning systems, econometric models, stress testing

JEL Classification: E44, E47, G21

Suggested Citation

Wong, Jim and Wong, Tak-Chuen and Leung, Phyllis, Predicting Banking Distress in the EMEAP Economies (February, 24 2011). Journal of Financial Stability, Vol. 6, No. 3, 2010. Available at SSRN: https://ssrn.com/abstract=1768603

Jim Wong

Hong Kong Monetary Authority ( email )

3 Garden Road, 30th Floor
Hong Kong
Hong Kong

Tak-Chuen Wong (Contact Author)

Hong Kong Monetary Authority - Research Department ( email )

55/F, Two International Finance Centre,
8 Finance Street, Central,
Hong Kong
Hong Kong

Phyllis Leung

Hong Kong Monetary Authority - Research Department ( email )

3 Garden Road, 30th Floor
Hong Kong
China

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