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In search of a measure of banking sector distress: empirical study of CESEE banking sectors

Author

Listed:
  • Paola Bongini

    (Milan-Bicocca University)

  • Małgorzata Iwanicz-Drozdowska

    (Warsaw School of Economics)

  • Paweł Smaga

    (Warsaw School of Economics and National Bank of Poland)

  • Bartosz Witkowski

    (Warsaw School of Economics)

Abstract

We tested the reliability of different versions of the Z-score and CAMELS-based financial strength indices (aggregated from bank-level data) in detecting periods of banking crisis on a sample of 20 Central, Eastern, and Southeastern European (CESEE) countries during 1995–2014. We demonstrated that the predictive power of both types of accounting-based measures is weak. Our results cast some doubt on their usefulness in academic research and in the macroprudential monitoring framework for emerging economies. Thus, there is a need to strengthen the informational content of accounting data through more frequent and higher-quality data disclosures, including exposures allowing for analysis of interconnectedness and network effects for systemic banking risk monitoring.

Suggested Citation

  • Paola Bongini & Małgorzata Iwanicz-Drozdowska & Paweł Smaga & Bartosz Witkowski, 2018. "In search of a measure of banking sector distress: empirical study of CESEE banking sectors," Risk Management, Palgrave Macmillan, vol. 20(3), pages 242-257, August.
    • Handle: RePEc:pal:risman:v:20:y:2018:i:3:d:10.1057_s41283-017-0031-y
    DOI: 10.1057/s41283-017-0031-y
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