Measuring Banking System Resilience by Using the Texas Ratio

Vladimir Mirković, Marina Iliev Matić and Branislav Dudić

The European Journal of Applied Economics, 2024, vol. 21, issue 1, 48-59

Abstract: The issue of banking sector resilience is one of the most exploited after the global financial crisis. Competent authorities and central banks worldwide conducted a series of actions to strengthen their systems and made them more resilient to extraordinary events. For that purpose, there were conducted stress tests leading to results for the improvement of the central bank's supervisory activities and practices. Also, the analysis of banking sector resilience should be complemented with other measures, which are also treated as early warning indicators. Texas ratio is one of the early warning indicators that could indicate the banking system's stability through the analysis of non-performing loans as a portion of "toxic" assets in banks. A high percentage of non-performing loans poses a serious threat to banking institutions' ability to survive, hence it is crucial to monitor them and find effective solutions. The authors of the research stress the importance of using the Texas ratio when evaluating the resilience of the banking industry. The main findings of the paper are reflected in a positive correlation between NPL and Texas ratio and recommendation for Texas ratio's widespread usage in practice.

Keywords: resilience; banking sector; non-performing loans; Texas ratio; Republic of Serbia (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:sng:ejae01:202

DOI: 10.5937/EJAE21-48577

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