Early Warning Indicators of Banking Crises: Expanding the Family

17 Pages Posted: 13 Mar 2018

See all articles by Iñaki Aldasoro

Iñaki Aldasoro

Bank for International Settlements (BIS)

Claudio E. V. Borio

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

Mathias Drehmann

Bank for International Settlements (BIS)

Date Written: March 11, 2018

Abstract

Household and international debt (cross-border or in foreign currency) are a potential source of vulnerabilities that could eventually lead to banking crises. We explore this issue formally by assessing the performance of these debt categories as early warning indicators (EWIs) for systemic banking crises. We find that they do contain useful information. In fact, over the more recent subsample, for household and cross-border debt indicators the information is similar to that of the more commonly used aggregate credit variables regularly monitored by the BIS. Confirming previous work, combining these indicators with property prices improves performance. An analysis of current global conditions based on this richer information set points to the build-up of vulnerabilities in several countries.

JEL Classification: E37, E44, F34, G21

Suggested Citation

Aldasoro, Iñaki and Borio, Claudio E.V. and Drehmann, Mathias, Early Warning Indicators of Banking Crises: Expanding the Family (March 11, 2018). BIS Quarterly Review, March 2018, Available at SSRN: https://ssrn.com/abstract=3139160

Iñaki Aldasoro (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Claudio E.V. Borio

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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