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Assessment of Banking System Fragility During Non-Crisis Periods: Chile 1990-1998

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  • Antonio Ahumada C.
  • Carlos Budnevich L.

Abstract

Identification of bank fragility is the motivation of a large literature. Its purpose is to provide early warning signals for prompt corrective action by bank supervisors. This paper reviews the literature and explores some definitions of fragility for the Chilean case. Non-performing loans and the interbank spread are used as tentative measures of fragility. Bank financial ratios that reflect bank performance and macroeconomic variables comprise the set of explanatory variables. The results suggest that the level of capital, loans growth, and market interest rates are important determinants of diferences in non-performing loans across banks. However, interbank spreads are only sensitive to macroeconomic variables.

Suggested Citation

  • Antonio Ahumada C. & Carlos Budnevich L., 1999. "Assessment of Banking System Fragility During Non-Crisis Periods: Chile 1990-1998," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 2(2), pages 021-038, August.
    • Handle: RePEc:chb:bcchec:v:2:y:1999:i:2:p:021-038
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    1. Martin, Daniel, 1977. "Early warning of bank failure : A logit regression approach," Journal of Banking & Finance, Elsevier, vol. 1(3), pages 249-276, November.
    2. Jones, David S. & King, Kathleen Kuester, 1995. "The implementation of prompt corrective action: An assessment," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 491-510, June.
    3. P. Honohan, 2000. "Banking System Failures in Developing and Transition Countries: Diagnosis and Prediction," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 29(1), pages 83-109, February.
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