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Whose Balance Sheet is this? Neural Networks for Banks' Pattern Recognition

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  • León, C.

    (Tilburg University, Center For Economic Research)

  • Moreno, José Fernando
  • Cely, Jorge

Abstract

The balance sheet is a snapshot that portraits the financial position of a firm at a specific point of time. Under the reasonable assumption that the financial position of a firm is unique and representative, we use a basic artificial neural network pattern recognition method on Colombian banks’ 2000-2014 monthly 25-account balance sheet data to test whether it is possible to classify them with fair accuracy. Results demonstrate that the chosen method is able to classify out-of-sample banks by learning the main features of their balance sheets, and with great accuracy. Results confirm that balance sheets are unique and representative for each bank, and that an artificial neural network is capable of recognizing a bank by its financial accounts. Further developments fostered by our findings may contribute to enhancing financial authorities’ supervision and oversight duties, especially in designing early-warning systems.
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Suggested Citation

  • León, C. & Moreno, José Fernando & Cely, Jorge, 2017. "Whose Balance Sheet is this? Neural Networks for Banks' Pattern Recognition," Discussion Paper 2017-009, Tilburg University, Center for Economic Research.
    • Handle: RePEc:tiu:tiucen:75d8648e-9855-4c5c-9aa9-0d92cc522e1b
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    Cited by:

    1. León, Carlos & Barucca, Paolo & Acero, Oscar & Gage, Gerardo & Ortega, Fabio, 2020. "Pattern recognition of financial institutions’ payment behavior," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 1(1).
    2. Muhammad Nadim Hanif & Khurrum S. Mughal & Javed Iqbal, 2018. "A Thick ANN Model for Forecasting Inflation," SBP Working Paper Series 99, State Bank of Pakistan, Research Department.

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    More about this item

    Keywords

    supervised learning; machine learning; artificial neural networks; classification;
    All these keywords.

    JEL classification:

    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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