Determinants of Bank Distress in Europe: Evidence from a New Data Set |
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Authors: | Tigran Poghosyan Martin ?ihak |
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Institution: | (1) International Monetary Fund, 700 19th Street, N. W., Washington, DC 20431, USA |
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Abstract: | Using a unique data set on bank distress, this paper provides novel empirical evidence on the determinants of bank soundness
in the European Union (EU) as a whole. The estimation results are consistent with the hypothesis that bank risks have converged
across EU members, providing empirical support for introduction of a more centralized system of financial regulation in the
EU. We show that asset quality and earning profile of banks are important determinants of bank distress next to leverage,
suggesting that these should be central in EU-wide financial regulation and supervision. We find that market discipline, both
by depositors and by stock market participants, plays a role in the EU, supporting the notion that transparency and dissemination
of financial information would contribute to the financial soundness of banks. Our data also point to the presence of contagion
effects, relatively higher fragility of concentrated banking sectors, and hazards associated with high ratios of wholesale
funding. |
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Keywords: | |
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