In search of a measure of banking sector distress: empirical study of CESEE banking sectors
Paola Bongini (),
Małgorzata Iwanicz-Drozdowska (),
Paweł Smaga () and
Bartosz Witkowski ()
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Paola Bongini: Milan-Bicocca University
Małgorzata Iwanicz-Drozdowska: Warsaw School of Economics
Paweł Smaga: Warsaw School of Economics and National Bank of Poland
Risk Management, 2018, vol. 20, issue 3, 242-257
Abstract We tested the reliability of different versions of the Z-score and CAMELS-based financial strength indices (aggregated from bank-level data) in detecting periods of banking crisis on a sample of 20 Central, Eastern, and Southeastern European (CESEE) countries during 1995–2014. We demonstrated that the predictive power of both types of accounting-based measures is weak. Our results cast some doubt on their usefulness in academic research and in the macroprudential monitoring framework for emerging economies. Thus, there is a need to strengthen the informational content of accounting data through more frequent and higher-quality data disclosures, including exposures allowing for analysis of interconnectedness and network effects for systemic banking risk monitoring.
Keywords: Financial strength; Z-Score; CAMELS; Crisis (search for similar items in EconPapers)
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