Banks’ default risk and regulatory factors in emerging market economies

Christophe J. Godlewski ()

Journal of Financial Transformation, 2005, vol. 15, pages 147-158

Abstract: This work follows the early warning signals literature. We propose to test the validity of the CAMEL rating typology for banks’ default models in emerging markets. We focus explicitly on these types of economies and we also investigate the impact of several regulatory, institutional, and legal factors on banks’ default probability. Using a logit model applied to a database of defaulted banks in emerging markets, we validate the principle results of the early warning signals models which follow the CAMEL typology. The proxy variables of bank solvability, assets’ quality, and liquidity, particularly loan losses provisions, management quality, profitability, and intermediation rate have a negative impact on the one year probability of banks’ default. Concerning the impact of regulatory and institutional factors, deposits insurance system scheme, regulation, prudential supervision, and market structure have significant impact on banks’ probability of default in emerging market economies.

Keywords: Bank’s default; early warning signal models; CAMEL rating; regulatory and institutional factors; emerging market economies; logit model (search for similar items in EconPapers)
JEL-codes: C35 G21 (search for similar items in EconPapers)
Date: 2005

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Persistent link: http://EconPapers.repec.org/RePEc:ris:jofitr:0953

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