Journal of Banking & Finance Vol. 45 2014
Predicting distress in European banks
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 policymaker’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.
- DOI
- 10.1016/j.jbankfin.2013.11.041
- Volume
- 45
- Pages
- 225-241
- Language
- en
- Sources
- crossref openalex bibtex:phds-export.bib