Banking stability measures

Miguel A. Segoviano and Charles Goodhart

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: The recent crisis underlined that proper estimation of distress-dependence amongst banks in a global system is essential for financial stability assessment. We present a set of banking stability measures embedding banks’ linear (correlation) and nonlinear distress-dependence, and their changes through the economic cycle, thereby allowing analysis of stability from three complementary perspectives: common distress in the system, distress between specific banks, and cascade effects associated with a specific bank. Our approach defines the banking system as a portfolio of banks and infers its multivariate density from which the proposed measures are estimated. These can be provided for developed and developing countries.

Keywords: Financial stability; portfolio risk; copula functions; entropy distribution. (search for similar items in EconPapers)
JEL-codes: C02 C19 C52 C61 E32 G21 (search for similar items in EconPapers)
Pages: 61 pages
Date: 2009-01-01
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Citations: View citations in EconPapers (222)

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:24416

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