Off-balance sheet exposures and banking crises in OECD countries

Dilruba Karim, Iana Liadze, Ray Barrell and E Davis ()

Journal of Financial Stability, 2013, vol. 9, issue 4, 673-681

Abstract: Against the background of the acknowledged importance of off-balance-sheet exposures in the sub prime crisis, we seek to investigate whether this was a new phenomenon or common to earlier crises. Using a logit approach to predicting banking crises in 14 OECD countries we find a significant impact of a proxy for the ratio of banks’ off-balance-sheet activity to total (off and on balance sheet) activity, as well as capital and liquidity ratios, the current account balance and GDP growth. These results are robust to the exclusion of the most crisis prone countries in our model. For early warning purposes we show that real house price growth is a good proxy for off balance sheet activity prior to the sub-prime episode. Variables capturing off-balance sheet activity have been neglected in most early warning models to date. We consider it essential that regulators take into account the results for crisis prediction in regulating banks and their off-balance sheet exposures, and thus controlling their contribution to systemic risk.

Keywords: Banking crises; Logit; Off-balance sheet activity (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (29)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:9:y:2013:i:4:p:673-681

DOI: 10.1016/j.jfs.2012.07.001

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