Financial Soundness Indicators and Financial Crisis Episodes

66 Pages Posted: 11 Aug 2022

See all articles by Athanasios Tagkalakis

Athanasios Tagkalakis

Bank of Greece; University of Patras

Maria Kasselaki

Bank of Greece

Date Written: May 1, 2013

Abstract

This paper studies the links between financial soundness indicators and financial crisis episodes controlling for several macroeconomic and fiscal variables in 20 OECD countries. We focus our attention on aggregate capital adequacy, asset quality and bank profitability indicators compiled by the IMF. Our key findings suggest that, in times of severe financial crisis, regulatory capital to risk weighted assets increases (by about 0.5- 0.6 percentage points –p.p.) to abide by regulatory and supervisory demands, non performing loans (NPL) to total loans increase dramatically (by about 0.5-0.6 p.p.), but loan loss provisions lag behind NPLs (they fall by about 12.3-18.8 p.p.) and profitability deteriorates dramatically (returns on assets (equity) fall by about 0.3-0.4 (5.0-7.0) p.p.).

Keywords: Bank profitability, capital adequacy, asset quality, financial crisis

JEL Classification: E44, E58, G21, G28, E61, E62, H61, H62, E32

Suggested Citation

Tagkalakis, Athanasios and Kasselaki, Maria, Financial Soundness Indicators and Financial Crisis Episodes (May 1, 2013). Bank of Greece Working Paper No. 158, Available at SSRN: https://ssrn.com/abstract=4182441 or http://dx.doi.org/10.2139/ssrn.4182441

Athanasios Tagkalakis (Contact Author)

Bank of Greece ( email )

21 E. Venizelos Avenue
GR 102 50 Athens
Greece

University of Patras

Patra
Greece

Maria Kasselaki

Bank of Greece ( email )

21 E. Venizelos Avenue
GR 102 50 Athens
Greece

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