Microeconomic determinants of losses in financial institutions during the crisis

Antonio Forte and Alessandra Cepparulo

MPRA Paper from University Library of Munich, Germany

Abstract: In this study we try to explain the inclusion of banks in the WDCI list proposed by Bloomberg. This list collects a group of more than 100 banking institutions which, during the crisis, suffered losses. We explain the probability of being part of the list (to suffer severe or highly severe losses) by their structure and performance. These aspects are represented by 4 variables: ROA, tier1 ratio, number of employees and total assets, referred to the two years preceding the crisis, of a larger sample of more than 400 banks comprehending the banks in and outside the list. By considering the heterogeneity among the banks of the list, an explanation of the probability of highly sever losses is offered by considering the previous variables with the addition of interbanking assets. By using a probit model we find a confirmation of the new rules, inspired by the Basel 3 Accord and by the Financial Stability Board, requiring a solid patrimonial structure, in particular for the “too big to fail” financial institutions, accompanied by a medium return in order to assure a low probability to suffer losses.

Keywords: Bank; Tier1; financial crisis; losses (search for similar items in EconPapers)
JEL-codes: G01 G21 (search for similar items in EconPapers)
Date: 2012-05
New Economics Papers: this item is included in nep-ban
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Related works:
Journal Article: MICROECONOMIC DETERMINANTS OF LOSSES IN FINANCIAL INSTITUTIONS DURING THE CRISIS (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:38539

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