Monitoring Banking Sector Fragility A Multivariate Logit Approach
27 Pages Posted: 15 Feb 2006
Date Written: October 1999
This paper explores how a multivariate logit empirical model of banking crisis probabilities can be used to monitor banking sector fragility. The proposed approach relies on readily available data, and the fragility assessment has a clear interpretation based on in-sample statistics. The model has better in-sample performance than currently available alternatives, and the monitoring system can be tailored to fit the preferences of the decision maker regarding type I and type II errors. The framework can be useful as a preliminary screen to economize on precautionary costs.
Keywords: Banking crises bank fragility monitoring
JEL Classification: E44 E47 G21
Suggested Citation: Suggested Citation