EconPapers    
Economics at your fingertips  
 

ESTIMATING A JOINT PROBABILITY OF DEFAULT INDEX FOR INDONESIAN BANKS: A COPULA APPROACH

Zaafri Ananto Husodo (), Sigit Wibowo, Muhammad Budi Prasetyo, Usman Arief and Maulana Harris Muhajir
Additional contact information
Zaafri Ananto Husodo: Universitas Indonesia
Muhammad Budi Prasetyo: Universitas Indonesia
Usman Arief: Universitas Indonesia
Maulana Harris Muhajir: Bank Indonesia

Bulletin of Monetary Economics and Banking, 2020, vol. 23, issue 3, 387-410

Abstract: We develop a joint default probability index to signal potential systemic risks in the highly concentrated Indonesian banking industry. To build the index, we estimate bank-level tail risks using monthly bank financial reports. We use the copula approach to derive the joint multivariate dependencies at the bank level, as reflected in the monthly financial reports. Our results, which are based on a sample of 104 banks fromDecember 2003 to April 2020, show joint multivariate dependencies at the bank level suggesting that the standard univariate normal distribution is unsuitable for capturing tail risks of individual banks. Our index accurately captures the global financial crisis of 2007-2008 indicating that it is a valid joint default probability index. Further, our index also signaled a higher degree of joint default before the COVID-19 outbreak in2020, suggesting that it is a good indicator of potential systemic risk in the economy.

Keywords: Copula; Pair copula construction; Systemic risk; Financial system (search for similar items in EconPapers)
JEL-codes: C15 G18 G21 (search for similar items in EconPapers)
Date: 2020
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://www.bmeb-bi.org/index.php/BEMP/article/view/1358/932 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:idn:journl:v:23:y:2020:i:3e:p:387-410

DOI: 10.21098/bemp.v23i3.1358

Access Statistics for this article

Bulletin of Monetary Economics and Banking is currently edited by Paresh Narayan

More articles in Bulletin of Monetary Economics and Banking from Bank Indonesia Contact information at EDIRC.
Bibliographic data for series maintained by Lutzardo Tobing () and Jimmy Kathon ().

 
Page updated 2023-03-26
Handle: RePEc:idn:journl:v:23:y:2020:i:3e:p:387-410