Credit Funding and Banking Fragility: An Empirical Analysis for Emerging Economies

Alexander Guarín-López () and Ignacio Lozano-Espitia
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Alexander Guarín-López: Banco de la República de Colombia, http://www.banrep.gov.co/es/alexander-guarin
Authors registered in the RePEc Author Service: Alexander Guarín López

Borradores de Economia from Banco de la Republica de Colombia

Abstract: This paper proposes an empirical model to identify and forecast banking fragility episodes using information on the credit funding sources. We predict the probability of occurrence of such episodes 0, 3 and 6 months ahead employing a Bayesian Model Averaging of logistic regressions. The exercises use monthly balance sheet data since the middle of the nineties for the banking system of nine merging economies: Brazil, Colombia, Croatia, Czech Republic, Mexico, Peru, Poland, Taiwan and Turkey. Our findings suggest that the increasing use of wholesale funds to support credit expansion provides warning signals of banking frailness. The in-sample and out-of-sample predictions indicate that the proposed technique is a suitable tool for forecasting short-term financial fragility events. Therefore, monitoring these funds through our tool could become useful in prudential practice.

Keywords: credit cycle; financial stability; wholesale funds; balance sheet; logistic model regression; Bayesian model averaging. (search for similar items in EconPapers)
JEL-codes: C11 C52 C53 G01 G21 (search for similar items in EconPapers)
Pages: 24
Date: 2016-03
New Economics Papers: this item is included in nep-ban and nep-for
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https://doi.org/10.32468/be.931 (application/pdf)

Related works:
Working Paper: Credit Funding and Banking Fragility: An Empirical Analysis for Emerging Economies (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:bdr:borrec:931

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