Excessive Risk-Taking, Banking Sector Fragility, and Banking Crises
U of Illinois, Commerce and Bus. Admin. Working Paper No. 02-0114
50 Pages Posted: 21 Jul 2002
Date Written: June 24, 2002
In the financial crisis literature, it is usually argued that, contrary to the case of currency crises, construction of a time series index to identify banking crisis episodes is highly difficult, particularly because of the lack of reliable data on banking sector variables such as the level of non-performing loans. Accordingly, existing methods used to pinpoint banking crisis years are generally event-based, such as that used by Caprio and Klingebiel (1996 and 1999) and Lindgren et al. (1996). This paper, however, proposes a weighted banking sector fragility index to measure the changes in banks' vulnerability to crisis. Using monthly sectoral data for selected 22 countries, it is argued that this type of a fragility index seems to be highly useful in measurement and monitoring of changes in banking sector fragility.
Keywords: Banking sector fragility, banking crises, Argentina, Bolivia, Brazil, Chile, Indonesia, Israel, Japan, Kenya, Malaysia, Mexico, Pakistan, Paraguay, Peru, Philippines, Senegal, South Korea, Sweden, Thailand, Trinidad and Tobago, Turkey, Uruguay, and Venezuela
JEL Classification: E44, G21
Suggested Citation: Suggested Citation