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Off-balance sheet exposures and banking crises in OECD countries

Author

Listed:
  • Karim, Dilruba
  • Liadze, Iana
  • Barrell, Ray
  • Davis, E. Philip

Abstract

Against the background of the acknowledged importance of off-balance-sheet exposures in the sub prime crisis, we seek to investigate whether this was a new phenomenon or common to earlier crises. Using a logit approach to predicting banking crises in 14 OECD countries we find a significant impact of a proxy for the ratio of banks’ off-balance-sheet activity to total (off and on balance sheet) activity, as well as capital and liquidity ratios, the current account balance and GDP growth. These results are robust to the exclusion of the most crisis prone countries in our model. For early warning purposes we show that real house price growth is a good proxy for off balance sheet activity prior to the sub-prime episode. Variables capturing off-balance sheet activity have been neglected in most early warning models to date. We consider it essential that regulators take into account the results for crisis prediction in regulating banks and their off-balance sheet exposures, and thus controlling their contribution to systemic risk.

Suggested Citation

  • Karim, Dilruba & Liadze, Iana & Barrell, Ray & Davis, E. Philip, 2013. "Off-balance sheet exposures and banking crises in OECD countries," Journal of Financial Stability, Elsevier, vol. 9(4), pages 673-681.
    • Handle: RePEc:eee:finsta:v:9:y:2013:i:4:p:673-681
    DOI: 10.1016/j.jfs.2012.07.001
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    More about this item

    Keywords

    Banking crises; Logit; Off-balance sheet activity;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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