Estimating Default Frequencies and Macrofinancial Linkages in the Mexican Banking Sector

Marcos Souto and Rodolphe Blavy

No 2009/109, IMF Working Papers from International Monetary Fund

Abstract: The credit risk measures we develop in this paper are used to investigate macrofinancial linkages in the Mexican banking system. Domestic and external macro-financial variables are found to be closely associated with banking soundness. At the aggregate level, high external volatility and domestic interest rates are associated with higher expected default probability. Though results vary substantially across individual banks, domestic activity and U.S. growth, and higher asset prices, are generally associated with lower credit risks, while increased volatility worsens credit risks. The expected default probability is also found to be a leading indicator of traditional financial stability indicators.

Keywords: WP; bank; book value; asset; banking sector; credit risk; macrofinancial links; Mexico; banking sector soundness; credit risk indicator; asset volatility; book value risk indicator; bank vulnerability; medium-size bank; banking system; book value asset volatility; risk measure; downside-risk volatility; balance sheet datum; Commercial banks; Bank soundness; Nonperforming loans; Financial statements; Global (search for similar items in EconPapers)
Pages: 32
Date: 2009-05-01
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Citations: View citations in EconPapers (12)

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