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How well do aggregate prudential ratios identify banking system problems?

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  • Cihák, Martin
  • Schaeck, Klaus

Abstract

Aggregate prudential ratios have become a mainstay of financial stability analysis. But how reliable are these indicators when it comes to distinguishing between strong and weak banking systems? We address this issue by analyzing the performance of aggregate prudential ratios in systemic banking crises, drawing upon a large cross-country dataset. We caution against sole reliance on these indicators, and advocate supplementing them with other tools and techniques. Nonetheless, our findings offer evidence that some of the ratios can help identify systemic banking problems.

Suggested Citation

  • Cihák, Martin & Schaeck, Klaus, 2010. "How well do aggregate prudential ratios identify banking system problems?," Journal of Financial Stability, Elsevier, vol. 6(3), pages 130-144, September.
    • Handle: RePEc:eee:finsta:v:6:y:2010:i:3:p:130-144
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    References listed on IDEAS

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