Banking Stability Measures

Charles Goodhart () and Miguel Segoviano ()

FMG Discussion Papers from Financial Markets Group

Abstract: The recent crisis underlined that proper estimation of distress-dependence amongst banks in a global system is essential for financial stability assessment. We present a set of banking stability measures embedding banks’ linear (correlation) and nonlinear distress-dependence, and their changes through the economic cycle, thereby allowing analysis of stability from three complementary perspectives: common distress in the system, distress between specific banks, and cascade effects associated with a specific bank. Our approach defines the banking system as a portfolio of banks and infers its multivariate density from which the proposed measures are estimated. These can be provided for developed and developing countries.

New Economics Papers: this item is included in nep-ban, nep-cba, nep-pke and nep-rmg
Date: 2009-01

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