Monitoring Banking Sector Fragility: A Multivariate Logit Approach |
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| Authors: | Demirguc-Kunt Asli; Detragiache Enrica |
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| Institution: | lead economist with the Development Research Group at the World Bank ademirguckunt{at}worldbank.org
senior economist with the Research Department at the International Monetary Fund edetragiache{at}imf.org |
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| Abstract: | This article explores how a multivariate logit model of theprobability of a banking crisis can be used to monitor bankingsector fragility. The proposed approach relies on readily availabledata, and the fragility assessment has a clear interpretationbased on in-sample statistics. The model has better in-sampleperformance than currently available alternatives, and the monitoringsystem can be tailored to fit the preferences of decisionmakersregarding type I and type II errors. The framework can be usefulas a preliminary screen to economize on precautionary costs. |
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