The early warnings of banking crises: Interaction of broad liquidity and demand deposits

Michael Lang and Paul G. Schmidt

Journal of International Money and Finance, 2016, vol. 61, issue C, 1-29

Abstract: This paper explores the fundamentals in the run-up to systemic banking crises. It applies a visualisation approach that combines elements of an event study analysis and a fan chart technique. The approach helps identify potential leading indicators. A multivariate analysis follows. This paper presents a new early warning system for banking crises built upon these indicators. The interaction of liquidity ratio and loss of demand deposits is incorporated into the model and substantially improves the results. The selected factors are highly statistically significant and robust. The out-of-sample forecasts demonstrate the strong predictive power of the model.

Keywords: Banking crises; International capital flows; Interaction of liquid assets and deposits; Financial sector vulnerability; Early warning system (search for similar items in EconPapers)
JEL-codes: F32 F34 G01 G21 O16 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:61:y:2016:i:c:p:1-29

DOI: 10.1016/j.jimonfin.2015.11.003

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