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On the consistency of the Z-score to measure the bank risk

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  • Ion Lapteacru

    (Larefi, Université de Bordeaux)

Abstract

This paper explores the effects of CEE banks’ balance sheet strategies and the impact of banking reforms on their risk-taking behaviour and assesses them with respect to banks’ ownership profile. With our asymmetric Z-score and Distance to Default, we find that state-owned banks are the riskiest and foreign banks the safest institutions. Moreover, the market perceives the former as being riskier regardless of their balance sheet policies. More interbank deposits and long-term funds increase the Z-scores of these banks to a larger extent, but more income diversification has the opposite effect. As for domestic private and foreign banks, these balance sheet policies do not affect the accounting-based risk measure of these institutions. Finally, in countries and periods with banking regulations that conform to the Basel requirements to a greater degree, foreign and private banks are less risky with respect to their Z-score and this effect is stronger for foreign institutions.

Suggested Citation

  • Ion Lapteacru, 2016. "On the consistency of the Z-score to measure the bank risk," Larefi Working Papers 1604, Larefi, Université Bordeaux 4.
    • Handle: RePEc:laf:wpaper:cr1604
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    Cited by:

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    2. Hassan Belkacem GHASSAN, 2017. "New alternative measuring financial stability," Turkish Economic Review, KSP Journals, vol. 4(3), pages 275-281, September.
    3. Bogdan Căpraru & Iulian Ihnatov & Nicoleta-Livia Pintilie, 2021. "Bank Competition And Risk-Taking In The European Union: Evidence Of A Non-Linear Relationship," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 66(230), pages 35-66, July – Se.
    4. Rachita Gulati & M. Kabir Hassan & Vincent Charles, 2024. "Developing a New Multidimensional Index of Bank Stability and Its Usage in the Design of Optimal Policy Interventions," Computational Economics, Springer;Society for Computational Economics, vol. 63(4), pages 1281-1325, April.
    5. Elizaveta Kamaraeva, 2020. "Bank Complexity and Risk," Russian Journal of Money and Finance, Bank of Russia, vol. 79(3), pages 75-104, September.
    6. Ngambou Djatche, Melchisédek Joslem, 2019. "Re-exploring the nexus between monetary policy and banks' risk-taking," Economic Modelling, Elsevier, vol. 82(C), pages 294-307.
    7. Gulati, Rachita & Singh, Nirmal & Kumar, Sunil & Duppati, Geeta, 2023. "Bank stability in the Indian subcontinent region: Evolution and determinants," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    8. Brana, Sophie & Campmas, Alexandra & Lapteacru, Ion, 2019. "(Un)Conventional monetary policy and bank risk-taking: A nonlinear relationship," Economic Modelling, Elsevier, vol. 81(C), pages 576-593.
    9. Lapteacru, Ion, 2017. "Market power and risk of Central and Eastern European banks: Does more powerful mean safer?," Economic Modelling, Elsevier, vol. 63(C), pages 46-59.
    10. Ion Lapteacru, 2017. "The Z-score is dead, long live the Z-score! A new way to measure bank risk," Working Papers hal-01518652, HAL.
    11. Vodová,Pavla Klepková & Pale?ková,Iveta & Stavárek,Daniel, 2023. "Banking Stability and Financial Conglomerates in European Emerging Countries," Cambridge Books, Cambridge University Press, number 9781009095112.
    12. Esteban Miguélez & Jonathan Spiteri & Simon Grima, 2019. "Establishing the Contributing Factors to the Resurrection of PIIGS Banks Following the Crisis: A Panel Data Analysis," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(1), pages 3-34.
    13. Campmas, Alexandra, 2020. "How do European banks portray the effect of policy interest rates and prudential behavior on profitability?," Research in International Business and Finance, Elsevier, vol. 51(C).

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