The Subprime Crisis Once Again, Z-Score or Rating: A Study on Banks of the Euro Zone

19 Pages Posted: 7 Jul 2020

See all articles by Lotfi Taleb

Lotfi Taleb

Ecole Superieure des Sciences Economiques et Commerciales de Tunis (ESSECT), Université de Tunis

Dalenda Khouaja

University of Tunis

Date Written: Juin 10, 2020

Abstract

This article focuses on the study of the impact of prudential banking regulations on the risk of bank failures in the Eurozone during the subprime financial crisis. Two indicators of bankruptcy risk measures are used:

(i) the Z-score and

(ii) the rating.

The methodology adopted consists of making estimates using a Logit model including CAMEL variables, regulatory variables, and macroeconomic-level variables. The empirical results found show that, regardless of the approach used to measure the risk of bankruptcy, variables such as the strengthening of equity, the level of liquidity, the restriction and supervision of banking activities are statistically significant. In addition, we find that the Z-score, as a method of assessing the banking risk, shows a certain superiority compared to the rating to better prevent in ex-post the cases of banks in bankruptcy during the subprime crisis.

Keywords: Z-Score, Rating, Subprime Crisis, Bank Failure, CAMEL, Logit Model

JEL Classification: G21, G28, G33, G38

Suggested Citation

Taleb, Lotfi and Khouaja, Dalenda, The Subprime Crisis Once Again, Z-Score or Rating: A Study on Banks of the Euro Zone (Juin 10, 2020). Available at SSRN: https://ssrn.com/abstract=3145214 or http://dx.doi.org/10.2139/ssrn.3145214

Lotfi Taleb (Contact Author)

Ecole Superieure des Sciences Economiques et Commerciales de Tunis (ESSECT), Université de Tunis ( email )

4 rue Abou Zakaria El Hafsi
Montfleury, 1089
Tunisia

Dalenda Khouaja

University of Tunis ( email )

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