IDEAS home Printed from https://ideas.repec.org/p/chb/bcchwp/183.html
   My bibliography  Save this paper

A Review of the Literature on Early Warning Systems for Banking Crises

Author

Listed:
  • Alejandro Gaytán
  • Christian A. Johnson

Abstract

This paper presents a review of alternative methodologies for early detection of banking distress. The methodologies proposed are aimed to the early identification of financial distress for countries without an important recent history of bank failure, but facing an unstable international environment. We evaluate several indicators and methodologies to measure financial distress such as qualitative indicators, the signal extraction approach, limited dependent estimation and finally duration models.

Suggested Citation

  • Alejandro Gaytán & Christian A. Johnson, 2002. "A Review of the Literature on Early Warning Systems for Banking Crises," Working Papers Central Bank of Chile 183, Central Bank of Chile.
    • Handle: RePEc:chb:bcchwp:183
    as

    Download full text from publisher

    File URL: https://www.bcentral.cl/documents/33528/133326/DTBC_183.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Reinhart, Carmen & Goldstein, Morris & Kaminsky, Graciela, 2000. "Rating the Rating Agencies," MPRA Paper 24578, University Library of Munich, Germany.
    2. Jeffrey D. Sachs & Aaron Tornell & Andrés Velasco, 1996. "Financial Crises in Emerging Markets: The Lessons from 1995," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 147-216.
    3. César Calderón & Norman Loayza & Luis Servén, 2002. "Greenfield Fdi vs. Mergers and Acquisitions: Does the Distinction Matter?," Working Papers Central Bank of Chile 173, Central Bank of Chile.
    4. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
    5. Hutchison, Michael & McDill, Kathleen, 1999. "Are All Banking Crises Alike? The Japanese Experience in International Comparison," Journal of the Japanese and International Economies, Elsevier, vol. 13(3), pages 155-180, September.
    6. Morris Goldstein & Graciela Kaminsky & Carmen Reinhart, 2017. "Methodology and Empirical Results," World Scientific Book Chapters, in: TRADE CURRENCIES AND FINANCE, chapter 11, pages 397-436, World Scientific Publishing Co. Pte. Ltd..
    7. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
    8. Marcelo Dabos & Walter Sosa Escudero, 2000. "Explaining and Predicting Bank Failure in Argentina Using Duration Models," Working Papers 26, Universidad de San Andres, Departamento de Economia, revised Apr 2000.
    9. Liliana Rojas-Suarez, 2001. "Rating Banks in Emerging Markets: What Credit Rating Agencies Should Learn from Financial Indicators," Working Paper Series WP01-6, Peterson Institute for International Economics.
    10. Gorton, Gary, 1988. "Banking Panics and Business Cycles," Oxford Economic Papers, Oxford University Press, vol. 40(4), pages 751-781, December.
    11. 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.
    12. Diebold, Francis X & Rudebusch, Glenn D, 1989. "Scoring the Leading Indicators," The Journal of Business, University of Chicago Press, vol. 62(3), pages 369-391, July.
    13. Daniel C. Hardy & Ceyla Pazarbasioglu, 1999. "Determinants and Leading Indicators of Banking Crises: Further Evidence," IMF Staff Papers, Palgrave Macmillan, vol. 46(3), pages 1-1.
    14. Barry Eichengreen & Andrew K. Rose, 1998. "Staying Afloat When the Wind Shifts: External Factors and Emerging-Market Banking Crises," NBER Working Papers 6370, National Bureau of Economic Research, Inc.
    15. Graciela Laura Kaminsky, 1999. "Currency and Banking Crises: The Early Warnings of Distress," IMF Working Papers 1999/178, International Monetary Fund.
    16. Kolari, James & Glennon, Dennis & Shin, Hwan & Caputo, Michele, 2002. "Predicting large US commercial bank failures," Journal of Economics and Business, Elsevier, vol. 54(4), pages 361-387.
    17. International Monetary Fund, 1998. "Leading Indicators of Banking Crises: Was Asia Different?," IMF Working Papers 1998/091, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Fedorova, E. & Afanasev, D., 2014. "Comprehensive Crisis Indicator for Russia," Journal of the New Economic Association, New Economic Association, vol. 23(3), pages 38-59.
    2. Bräuning, Michael & Malikkidou, Despo & Scricco, Giorgio & Scalone, Stefano, 2019. "A new approach to Early Warning Systems for small European banks," Working Paper Series 2348, European Central Bank.
    3. Wong, Jim & Wong, Tak-Chuen & Leung, Phyllis, 2010. "Predicting banking distress in the EMEAP economies," Journal of Financial Stability, Elsevier, vol. 6(3), pages 169-179, September.
    4. Mario Maggi & Maria-Laura Torrente & Pierpaolo Uberti, 2020. "Proper measures of connectedness," Annals of Finance, Springer, vol. 16(4), pages 547-571, December.
    5. Tarkocin, Coskun & Donduran, Murat, 2024. "Constructing early warning indicators for banks using machine learning models," The North American Journal of Economics and Finance, Elsevier, vol. 69(PB).
    6. Davis, E. Philip & Karim, Dilruba, 2008. "Comparing early warning systems for banking crises," Journal of Financial Stability, Elsevier, vol. 4(2), pages 89-120, June.
    7. Oet, Mikhail V. & Bianco, Timothy & Gramlich, Dieter & Ong, Stephen J., 2013. "SAFE: An early warning system for systemic banking risk," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4510-4533.
    8. Fendel Ralf & Stremmel Hanno, 2016. "Characteristics of Banking Crises: A Comparative Study with Geographical Contagion," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 236(3), pages 349-388, May.
    9. Alessi, Lucia & Antunes, Antonio & Babecky, Jan & Baltussen, Simon & Behn, Markus & Bonfim, Diana & Bush, Oliver & Detken, Carsten & Frost, Jon & Guimaraes, Rodrigo & Havranek, Tomas & Joy, Mark & Kau, 2015. "Comparing different early warning systems: Results from a horse race competition among members of the Macro-prudential Research Network," MPRA Paper 62194, University Library of Munich, Germany.
    10. Rupa Duttagupta & Mr. Paul Cashin, 2008. "The Anatomy of Banking Crises," IMF Working Papers 2008/093, International Monetary Fund.
    11. Audit, Dooneshsingh & Alam, Nafis, 2022. "Why have credit variables taken centre stage in predicting systemic banking crises?," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 3(1).
    12. Figini, Silvia & Maggi, Mario & Uberti, Pierpaolo, 2020. "The market rank indicator to detect financial distress," Econometrics and Statistics, Elsevier, vol. 14(C), pages 63-73.
    13. Duttagupta, Rupa & Cashin, Paul, 2011. "Anatomy of banking crises in developing and emerging market countries," Journal of International Money and Finance, Elsevier, vol. 30(2), pages 354-376, March.
    14. Mr. Kasper Lund-Jensen, 2012. "Monitoring Systemic Risk Basedon Dynamic Thresholds," IMF Working Papers 2012/159, International Monetary Fund.
    15. Firano, Zakaria & Filali adib, Fatine, 2018. "Prevision des difficultes bancaires : un modele d'alerte precoce pour le cas du maroc [Prediction of banking difficulties: an early warning model for moroccan banking system]," MPRA Paper 95165, University Library of Munich, Germany.
    16. Filippopoulou, Chryssanthi & Galariotis, Emilios & Spyrou, Spyros, 2020. "An early warning system for predicting systemic banking crises in the Eurozone: A logit regression approach," Journal of Economic Behavior & Organization, Elsevier, vol. 172(C), pages 344-363.
    17. ?tefan Rychtárik & Franco Stragiotti, 2009. "Liquidity Risk Monitoring Framework: A Supervisory Tool," BCL working papers 43, Central Bank of Luxembourg.
    18. Hamdaoui, Mekki, 2016. "Are systemic banking crises in developed and developing countries predictable?," Journal of Multinational Financial Management, Elsevier, vol. 37, pages 114-138.
    19. Calice, Pietro, 2014. "Predicting bank insolvency in the Middle East and North Africa," Policy Research Working Paper Series 6969, The World Bank.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. K. Batu Tunay, 2010. "Banking Crises and Early Warning Systems: A Model Suggestion for Turkish Banking Sector," Journal of BRSA Banking and Financial Markets, Banking Regulation and Supervision Agency, vol. 4(1), pages 9-46.
    2. Wong, Jim & Wong, Tak-Chuen & Leung, Phyllis, 2010. "Predicting banking distress in the EMEAP economies," Journal of Financial Stability, Elsevier, vol. 6(3), pages 169-179, September.
    3. Demirgüç-Kunt, Asli & Detragiache, Enrica, 2005. "Cross-Country Empirical Studies of Systemic Bank Distress: A Survey," National Institute Economic Review, National Institute of Economic and Social Research, vol. 192, pages 68-83, April.
    4. Lin, Chin-Shien & Khan, Haider A. & Chang, Ruei-Yuan & Wang, Ying-Chieh, 2008. "A new approach to modeling early warning systems for currency crises: Can a machine-learning fuzzy expert system predict the currency crises effectively?," Journal of International Money and Finance, Elsevier, vol. 27(7), pages 1098-1121, November.
    5. Matthew S. Yiu & Alex Ho & Lu Jin, 2009. "Econometric Approach to Early Warnings of Vulnerability in the Banking System and Currency Markets for Hong Kong and Other EMEAP Economies," Working Papers 0908, Hong Kong Monetary Authority.
    6. Pavel Trunin & M. Kamenskih, 2007. "Monitoring Financial Stability In Developing Economies (Case of Russia)," Research Paper Series, Gaidar Institute for Economic Policy, issue 111.
    7. Saoussen Ben Gamra & Dominique Plihon, 2007. "Politiques de liberalisation financiere et crises bancaires," Economie Internationale, CEPII research center, issue 112, pages 5-28.
    8. Heun, Michael & Schlink, Torsten, 2004. "Early warning systems of financial crises: implementation of a currency crisis model for Uganda," Frankfurt School - Working Paper Series 59, Frankfurt School of Finance and Management.
    9. Christian A. Johnson, 2005. "Modelos de alerta temprana para pronosticar crisis bancarias: desde la extracción de señales a las redes neuronales," Revista de Analisis Economico – Economic Analysis Review, Universidad Alberto Hurtado/School of Economics and Business, vol. 20(1), pages 95-121, June.
    10. J‹Rgen Von Hagen & Tai-Kuang Ho, 2007. "Money Market Pressure and the Determinants of Banking Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(5), pages 1037-1066, August.
    11. Ward, Felix, 2014. "Spotting the Danger Zone - Forecasting Financial Crises with Classification Tree Ensembles and Many Predictors," Bonn Econ Discussion Papers 01/2014, University of Bonn, Bonn Graduate School of Economics (BGSE).
    12. Paolo Manasse & Roberto Savona & Marika Vezzoli, 2013. "Rules of Thumb for Banking Crises in Emerging Markets," Working Papers 481, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    13. Filippopoulou, Chryssanthi & Galariotis, Emilios & Spyrou, Spyros, 2020. "An early warning system for predicting systemic banking crises in the Eurozone: A logit regression approach," Journal of Economic Behavior & Organization, Elsevier, vol. 172(C), pages 344-363.
    14. Paolo Manasse & Roberto Savona & Marika Vezzoli, 2016. "Danger Zones for Banking Crises in Emerging Markets," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 21(4), pages 360-381, October.
    15. Mustapha Djennas & Mohamed Benbouziane & Meriem Djennas, 2011. "An Approach of Combining Empirical Mode Decomposition and Neural Network Learning for Currency Crisis Forecasting," Working Papers 627, Economic Research Forum, revised 09 Jan 2011.
    16. Demirguc, Asli & Detragiache, Enrica, 2000. "Monitoring Banking Sector Fragility: A Multivariate Logit Approach," The World Bank Economic Review, World Bank, vol. 14(2), pages 287-307, May.
    17. Ahec Šonje, Amina & Babić, Ante, 2002. "Measuring and predicting currency disturbances in Croatia: the “signals” approach," MPRA Paper 83137, University Library of Munich, Germany, revised Apr 2002.
    18. Komulainen, Tuomas, 2004. "Essays on financial crises in emerging markets," Scientific Monographs, Bank of Finland, number 2004_029.
    19. repec:zbw:bofism:2004_029 is not listed on IDEAS
    20. Musdholifah Musdholifah & Ulil Hartono, 2017. "Assesing Early Warning System Model for Banking Crisis in ASEAN Countries," International Journal of Economics and Financial Issues, Econjournals, vol. 7(4), pages 358-364.
    21. Saadaoui, Zied, 2009. "Fonds propres réglementaires et stabilité bancaire dans les pays émergents [Capital Requirements and Banking Stability in Emerging Countries]," MPRA Paper 25217, University Library of Munich, Germany.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:chb:bcchwp:183. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Alvaro Castillo (email available below). General contact details of provider: https://edirc.repec.org/data/bccgvcl.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.