Predicting distress in European banks

Frank Betz, Silviu Oprica, Tuomas Peltonen () and Peter Sarlin ()

No 1597, Working Paper Series from European Central Bank

Abstract: The paper develops an early-warning model for predicting vulnerabilities leading to distress in European banks using both bank and country-level data. As outright bank failures have been rare in Europe, the paper introduces a novel dataset that complements bankruptcies and defaults with state interventions and mergers in distress. The signals of the early warning model are calibrated not only according to the policy-maker's preferences between type I and II errors, but also to take into account the potential systemic relevance of each individual financial institution. The key findings of the paper are that complementing bank specific vulnerabilities with indicators for macro-financial imbalances and banking sector vulnerabilities improves model performance and yields useful out-of-sample predictions of bank distress during the current financial crisis. JEL Classification: E44, E58, F01, F37, G01

Keywords: bank distress; Early-warning model; prudential policy; signal evaluation (search for similar items in EconPapers)
Date: 2013-10
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eec and nep-for
Note: 355041
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (29)

Downloads: (external link)
https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp1597.pdf (application/pdf)

Related works:
Journal Article: Predicting distress in European banks (2014)
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:ecb:ecbwps:20131597

Access Statistics for this paper

More papers in Working Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().