Skip to main content
SpringerLink
Log in

Predicting European Bank Distress: Evidence from the Recent Financial Crisis

  • Chapter
Governance, Regulation and Bank Stability

Abstract

The global financial crisis has brought a large number of banks to the brink of collapse, including several European banks1, stressing the importance of detecting early signals of bank distress in order to activate prompt corrective actions. Indeed, identifying weak banks early is crucial, especially when problems are identified late, as solving them is much more costly. So in light of this, it becomes critically important to make use of data and indicators that can help supervisors and investors to discover which financial institutions are at risk of distress.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
eBook
USD 16.99
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 16.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info
Hardcover Book
USD 129.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

Similar content being viewed by others

References

  • Akhigbe, A., J. Madura and A. D. Martin (2007) ‘Effect of fed policy actions on the default likelihood of commercial banks’, Journal of Financial Research, 30, 147–162.

    Article  Google Scholar 

  • Ayadi, R., D.T. Llewellyn, R.H. Schmidt, E. Arbak, and W.P. De Groen (2010) ‘Investigating diversity in the banking sector in Europe: Key developments, performance and role of cooperative banks’, CEPR, Brussels.

    Google Scholar 

  • Beck, T. and L. Laeven (2006) ‘Resolution of failed Banks by deposit insurers: Cross-country evidence’, World Bank mimeo.

    Book  Google Scholar 

  • Beck T., O. De Jonghe and G. Schepens (2011) ‘Bank competition and stability: Cross country heterogeneity’, European Banking Center Discussion Paper, no. 019.

    Google Scholar 

  • Berger, A.N., R.J. Herring and G.P. Szegö (1995) ‘The role of capital in financial institutions’, Journal of Banking and Finance, 19, 393–430.

    Article  Google Scholar 

  • Betz, R, T. Peltonen and P. Sarlin (forthcoming) ‘Measures of tail dependence to predict distress in European banks’, European Central Bank Working Paper Series.

    Google Scholar 

  • Boyd, J. H. and S. L. Graham, (1986) ‘Risk, regulation, and bank holding company expansion into nonbanking’, Federal Reserve Bank of Minneapolis Quarterly Review, 2–17.

    Google Scholar 

  • Boyd, J. H. and S. L. Graham (1988) ‘The profitability and risk effects of allowing bank holding companies to merge with other financial firms: A simulation study’, Federal Reserve Bank of Minneapolis Quarterly Review (Spring), 3–20.

    Google Scholar 

  • Boyd, J. H. and D. E. Runkle. (1993) ‘Size and performance of banking firms: Testing the predictions of theory’, Journal of Monetary Economics, 31, 47–67.

    Article  Google Scholar 

  • Chiaramonte, L. and B. Casu (2013) ‘The determinants of bank CDS spreads: Evidence from the financial crisis’, European Journal of Finance, 19(9`), 861–887.

    Article  Google Scholar 

  • Cihák, M. (2007) ‘Systemic loss: A measure of financial stability’, Czech Journal of Economics and Finance, 57, 5–26.

    Google Scholar 

  • Constantinos, S. (2010) ‘Rethinking market discipline in banking lessons from the financial crisis’, World Bank Policy Research Working Paper, no. 5227, Washington, March.

    Google Scholar 

  • Elton, E. J., M. J. Gruber, D. Agrawal and C. Mann (2001) ‘Explaining the rate spread on corporate bonds’, The Journal of Finance, 56, 247–277.

    Article  Google Scholar 

  • Estrella, A., Park, S. and S. Peristiani (2000) ‘Capital ratios as predictors of bank failure’, Economic Policy Review, 6, 33–52.

    Google Scholar 

  • Flannery M. (1998) ‘Using market information in prudential banking supervision. A review of US evidence’, Journal of Money Credit and Banking, 3, 273–305.

    Article  Google Scholar 

  • Flannery, M. (2000) ‘The faces of market discipline’, University of Florida mimeo (October).

    Google Scholar 

  • Flannery, M. and S. Sorescu (1996) ‘Evidence of bank market discipline in subordinated debenture yields: 1983–1991’, The Journal of Finance, 4, 1347–1377.

    Google Scholar 

  • Flannery, M.J. (2010) ‘Market discipline in banking’, in Berger A., P. Molyneux and J.O.S. Wilson (eds), Oxford Handbook of Banking, Oxford University Press, 339–362.

    Google Scholar 

  • Garcia-Marco T. and M. Roblez-Fernandez (2008) ‘Risk-taking behaviour and ownership in the banking industry: The Spanish evidence’, Journal of Economics and Business, 60, 332–354.

    Article  Google Scholar 

  • Gropp, R., J. Vesala and G. Vulpes (2002) ‘Equity and bond market signals as leading indicators of bank fragility’, European Central Bank Working Paper series, no. 150.

    Google Scholar 

  • Gropp, R., J. Vesala and G. Vulpes (2004) ‘Market indicators, bank fragility, and indirect market discipline’, Federal Reserve Bank of New York Economic Policy Review, 10, 53–62.

    Google Scholar 

  • Hagendorff, J and P. Kato (2010) ‘Distance to default, subordinated debt, and distress indicators in the banking industry’, Accounting and Finance, 50, 853–870.

    Article  Google Scholar 

  • Hagendorff, J. and F. Vallascas (2011) ‘CEO pay incentives and risk-Taking: Evidence from bank acquisitions’, Journal of Corporate Finance, 17(4), 1078–1095, Special Section: Managerial Compensation.

    Article  Google Scholar 

  • Hannan, T. and G. Hanweck (1988) ‘Bank insolvency risk and the market for large certificates of deposit’, Journal of Money, Credit and Banking, 20(2), 203–211.

    Article  Google Scholar 

  • Hesse, H. and M. ÄŒihák (2007) ‘Cooperative banks and financial stability’, IMF Working Paper, 07(02), Washington: International Monetary Fund.

    Google Scholar 

  • Ivicic L., D. Kunovac and I. Ljubaj (2008) ‘Measuring bank insolvency risk in CEE countries’, Croatian National Bank Working Paper.

    Google Scholar 

  • Jagtiani, J., G. Kaufman and C. Lemieux (2000) ‘Do markets discipline banks and bank holding companies? Evidence from debt pricing’, Federal Reserve Bank of Chicago Emerging Issues Series 3R.

    Google Scholar 

  • Kick, T. and M. Koetter (2007) ‘Slippery slopes of stress: Ordered failure events in German banking’, Journal of Financial Stability, 3, 132–148.

    Article  Google Scholar 

  • Laeven, L. and R. Levine (2006) ‘Corporate governance, regulation, and bank risk taking’, World Bank mimeo.

    Google Scholar 

  • Laeven, L. and R. Levine (2009) ‘Bank governance, regulation and risk taking’, Journal of Financial Economics, 93(2), 259–275.

    Article  Google Scholar 

  • Liu, H., P. Molyneux and J. O. S. Wilson (2013) ‘Competition and stability in European banking: A regional analysis’, The Manchester School, 81(2), 176–201.

    Article  Google Scholar 

  • Lopez-Espinosa, G., A. Moreno, A. Rubia and L. Valderrama (2012) ‘Short-term wholesale funding and systemic risk: A global CoVar approach’, International Monetary Fund Working Paper.

    Google Scholar 

  • Maechler A., M. Srobona and D. Worrell (2005) ‘Exploring financial risks and vulnerabilities in new and potential EU member states’, Paper presented at the Second Annual DG ECFIN Research Conference on Financial Stability and the Convergence Process in Europe, October 6–7.

    Google Scholar 

  • Morgan, D., K. Stiroh (2001) ‘Bond market discipline of banks: Is the market tough enough?’ Federal Reserve Bank of New York Working Paper.

    Google Scholar 

  • Norden, L. and M. Weber (2010), ‘When senior meets junior: Information in credit default swap spreads of large banks’, Financial Intermediation Research Society (FIRS) meetings paper, Financial Intermediation Research Society (FIRS), Florence, June.

    Google Scholar 

  • Oshinsky, R., V. Olin (2006) ‘Troubled banks: Why don’t they all fail?’ FDIC Banking Review, 18, 23–44.

    Google Scholar 

  • Poghosyan, T. and M. ÄŒihák (2011) ‘Distress in European banks: An Analysis based on a new dataset’, Journal of Financial Services Research, 40, 163–184.

    Article  Google Scholar 

  • Rojas-Suarez, L. (2001) ‘Rating banks in emerging markets: What credit agencies should learn from financial indicators’, Institute for International Economics Working Paper, no. 6, May.

    Google Scholar 

  • Sinkey J. (1979) ‘Problem and failed institutions in the commercial banking industry’, Contemporary Studies in Economic and Financial Analysis 4, JAI Press.

    Google Scholar 

  • Sironi, A. (2000) ‘Testing for market discipline in the European banking industry: Evidence from subordinated debt spreads’, Board of Governors of the Federal Reserve System, Finance and Economics Discussion Series 40.

    Google Scholar 

  • Vassalou, M. and Y. Xing (2004) ‘Default risk in equity returns’, The Journal of Finance, 59: 831–868.

    Article  Google Scholar 

  • Vazquez, F. and P. Federico (2012) ‘Bank funding structures and risk: Evidence from the global financial crisis’, International Monetary Fund Working Paper, no. 29.

    Google Scholar 

  • Volz, M. and M. Wedow (2011) ‘Market discipline and too-big-to-fail in the CDS market: Does banks’ size reduce market discipline?’ Journal of Empirical Finance, 18, 195–210.

    Article  Google Scholar 

Download references

Authors
  1. Laura Chiaramonte
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Federica Poli
    View author publications

    You can also search for this author in PubMed Google Scholar

Editor information

Editors and Affiliations

  1. University of Gothenburg, Sweden

    Ted Lindblom (Professor of Business Administration) & Stefan Sjögren (Associate Professor of Business Administration) (Professor of Business Administration) &  (Associate Professor of Business Administration)

  2. Linnaeus University, Sweden

    Magnus Willesson (Senior Lecturer) (Senior Lecturer)

Copyright information

© 2014 Laura Chiaramonte and Federica Poli

About this chapter

Cite this chapter

Chiaramonte, L., Poli, F. (2014). Predicting European Bank Distress: Evidence from the Recent Financial Crisis. In: Lindblom, T., Sjögren, S., Willesson, M. (eds) Governance, Regulation and Bank Stability. Palgrave Macmillan Studies in Banking and Financial Institutions. Palgrave Macmillan, London. https://doi.org/10.1057/9781137413543_5

Download citation

Publish with us

Policies and ethics

Search

Navigation