In light of the renewed challenge to construct effective “Early Warning Systems” for sovereign debt crises, we empirically evaluate the predictive power of econometric models developed so far across developed and emerging country regions. We propose a different specification of the crisis variable that allows for the prediction of new crisis onsets as well as duration, and develop a more powerful dynamic-recursive forecasting technique to generate more accurate out-of-sample warning signals of sovereign debt crises. Our results are shown to be more accurate compared to the ones found in the existing literature.

This study examines how bank risk influences employee wage compensation, disentangling the effects of risk exposure and leverage. Using data from U.S. commercial banks (1990–2022), we find that higher bank risk—measured by earnings volatility, default probability, and credit risk—is associated with higher wages, alongside wage effects linked to monitoring incentives from greater capitalization. This relationship is most pronounced in smaller, less-capitalized banks, under favorable economic conditions, and when bank concentration is low—contexts where employees have greater bargaining power. Overall, bank wages reflect both compensation for job insecurity and monitoring-related incentives, offering insight into employee pay as a signal of bank fragility.

We empirically examine whether the way a bank might use loan loss provisions to smooth its income is influenced by its ownership concentration and the regulatory environment. Using a panel of European commercial banks, we find evidence that banks with more concentrated ownership use discretionary loan loss provisions to smooth their income. This behavior is less pronounced in countries with stronger supervisory regimes or higher external audit quality. Banks with low levels of ownership concentration do not display such discretionary income smoothing behavior. This suggests the need to improve existing or implement new corporate governance mechanisms.