Determinants of Ex-Ante Banking System Distress: A Macro-Micro Empirical Exploration of Some Recent Episodes

Brenda Gonzalez-Hermosillo

No 1999/033, IMF Working Papers from International Monetary Fund

Abstract: This paper empirically analyzes the contribution of microeconomic and macroeconomic factors in five recent episodes of banking system problems in the U.S. Southwest (1986–92), Northeast (1991–92), and California (1992–93); Mexico (1994–95); and Colombia (1982–87). The paper finds that a low capital equity and reserve coverage of problem loans ratio is a leading indicator of bank distress, signaling a high likelihood of near-term failure. Distress is shown to be a function of the same fundamental macro-micro sources of risk that determine bank failures. Focusing on distress has the advantage that the fragility of the banking system can be assessed before a crisis actually occurs.

Keywords: WP; coverage ratio; bank distress; performing loan; equity capital; Banking crisis; Banking sector fragility; survival time; hazard ratio; credit risk; Commercial banks; Distressed institutions; Nonperforming loans; Loans; Credit risk; Asia and Pacific; Global (search for similar items in EconPapers)
Pages: 114
Date: 1999-03-01
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Citations: View citations in EconPapers (74)

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Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:1999/033

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