Systemic Risk Assessment in Low Income Countries: Balancing Financial Stability and Development
41 Pages Posted: 14 Sep 2015
Date Written: August 2015
We propose a toolkit for the assessment of systemic risk buildup in low income countries. We show that, due to non-linearity in the relationship between credit and financial stability, the assessment should be conducted with different tools at different stages of financial development. In particular, when the level of financial depth is low, traditional leading indicators of banking crises have poor predictive performance and the analysis should be based on indicators that account for financial deepening while taking into consideration countries’ structural limits. By using this framework, we provide a preliminary assessment of systemic risk buildup in individual SSA countries.
Keywords: Early Warning Indicators, Financial Deepening, credit, bis, risk, banking, Financial Markets and the Macroeconomy, Financial Forecasting and Simulation,
JEL Classification: E44, G01, G17, G21
Suggested Citation: Suggested Citation