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Leading indicators of systemic banking crises: Finland in a panel of EU countries

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  • Patrizio Lainà
  • Juho Nyholm
  • Peter Sarlin

Abstract

This paper investigates leading indicators of systemic banking crises in a panel of 11 EU countries, with a particular focus on Finland. We use quarterly data from 1980Q1 to 2013Q2, in order to create a large number of macro‐financial indicators, as well as their various transformations. We make use of univariate signal extraction and multivariate logit analysis to assess what factors lead the occurrence of a crisis and with what horizon the indicators lead a crisis. We find that loans‐to‐deposits and house price growth are the best leading indicators. Growth rates and trend deviations of loan stock variables also yield useful signals of impending crises. While the optimal lead horizon is three years, indicators generally perform well with lead times ranging from one to four years. We also tap into unique long time‐series of the Finnish economy to perform historical explorations into macro‐financial vulnerabilities.

Suggested Citation

  • Patrizio Lainà & Juho Nyholm & Peter Sarlin, 2015. "Leading indicators of systemic banking crises: Finland in a panel of EU countries," Review of Financial Economics, John Wiley & Sons, vol. 24(1), pages 18-35, January.
    • Handle: RePEc:wly:revfec:v:24:y:2015:i:1:p:18-35
    DOI: 10.1016/j.rfe.2014.12.002
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    3. Maria Teresa Medeiros Garcia & Simão Rodrigues Abreu, 2024. "Banking stability determinants: evidence from Portugal," Journal of Banking Regulation, Palgrave Macmillan, vol. 25(2), pages 160-178, June.
    4. Marcin Pietrzak, 2021. "Can Financial Soundness Indicators Help Predict Financial Sector Distress?," IMF Working Papers 2021/197, International Monetary Fund.
    5. Tihana Skrinjaric, 2023. "Leading indicators of financial stress in Croatia: a regime switching approach," Public Sector Economics, Institute of Public Finance, vol. 47(2), pages 205-232.

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