Assessment of Banking System Fragility During Non-Crisis Periods: Chile 1990-1998

Antonio Ahumada C. and Carlos Budnevich L.

Journal Economía Chilena (The Chilean Economy), 1999, vol. 2, issue 2, 021-038

Abstract: Identification of bank fragility is the motivation of a large literature. Its purpose is to provide early warning signals for prompt corrective action by bank supervisors. This paper reviews the literature and explores some definitions of fragility for the Chilean case. Non-performing loans and the interbank spread are used as tentative measures of fragility. Bank financial ratios that reflect bank performance and macroeconomic variables comprise the set of explanatory variables. The results suggest that the level of capital, loans growth, and market interest rates are important determinants of diferences in non-performing loans across banks. However, interbank spreads are only sensitive to macroeconomic variables.

Date: 1999
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