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Monitoring banking sector fragility : a multivariate logit approach (English)

This article explores how a multivariate logit model of the probability of a banking crisis can be used to monitor banking sector fragility. The proposed approach relies on readily available data, and the fragility assessment has a clear interpretation based on in sample statistics. The model has better in-sample performance than currently available alternatives, and the monitoring system can be tailored to fit the preferences of decision makers regarding type I and type II errors. The framework can be useful as a preliminary screen to economize on precautionary costs.

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Citation

Demirguc-Kunt, Asli; Detragiache, Enrica

Monitoring banking sector fragility : a multivariate logit approach (English). Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/826781468179358104/Monitoring-banking-sector-fragility-a-multivariate-logit-approach