Determinants of Ex-Ante Banking System Distress: A Macro-Micro Empirical Exploration of Some Recent Episodes

114 Pages Posted: 12 Feb 2006

See all articles by Brenda González-Hermosillo

Brenda González-Hermosillo

International Monetary Fund; Massachusetts Institute of Technology

Date Written: March 1999

Abstract

This paper empirically analyzes the contribution of microeconomic and macroeconomic factors in five recent episodes of banking system problems in the U.S. Southwest (1986-92), Northeast (1991-92), and California (1992-93); Mexico (1994-95); and Colombia (1982-87). The paper finds that a low capital equity and reserve coverage of problem loans ratio is a leading indicator of bank distress, signaling a high likelihood of near-term failure. Distress is shown to be a function of the same fundamental macro-micro sources of risk that determine bank failures. Focusing on distress has the advantage that the fragility of the banking system can be assessed before a crisis actually occurs.

Keywords: Banking crisis, Banking sector fragility

JEL Classification: E44, G21

Suggested Citation

González-Hermosillo, Brenda, Determinants of Ex-Ante Banking System Distress: A Macro-Micro Empirical Exploration of Some Recent Episodes (March 1999). IMF Working Paper, Vol. , pp. 1-114, 1999. Available at SSRN: https://ssrn.com/abstract=880560

Brenda González-Hermosillo (Contact Author)

International Monetary Fund ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-4210 (Phone)
202-589-4210 (Fax)

Massachusetts Institute of Technology ( email )

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Cambridge, MA 02142
United States

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