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Title: The role of capital, liquidity and credit growth in financial crises in Latin America and East Asia
Authors: Barrell, R
Karim, D
Keywords: Banking crises;Capital;Liquidity;Early warning systems;Logit estimation;ROC curves;Event studies;Asia;Latin America
Issue Date: 2012
Publisher: Brunel University
Citation: Economics and Finance Working Paper, Brunel University, 12-13, Sep 2012
Abstract: We construct a dataset of bank capital adequacy and liquidity to test their relationships to crises in Asia and Latin America. Event studies, logit and ROC estimations suggest these variables are valuable leading indicators of crises. They can be used to improve Early Warning System design although there are trade-offs between model simplicity, which implies less monitoring costs and complexity which may improve accuracy. There are significant differences between the regions so pooling assumptions are unsound. AUCs show that capital and/or liquidity can be used in a parsimonious model without substantial loss in crisis predictive accuracy. We find no direct role for credit growth in either region. Our results have implications for Asian and Latin American financial regulators concerned with the impacts of Basel III on their banking systems.
Appears in Collections:Economics and Finance
Dept of Economics and Finance Research Papers

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