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How well do aggregate prudential ratios identify banking system problems?

Research output: Contribution to Journal/MagazineJournal articlepeer-review

<mark>Journal publication date</mark>1/09/2010
<mark>Journal</mark>Journal of Financial Stability
Issue number3
Number of pages14
Pages (from-to)130-144
Publication StatusPublished
Early online date3/04/10
<mark>Original language</mark>English


Aggregate prudential ratios have become a mainstay of financial stability analysis. But how reliable are these indicators when it comes to distinguishing between strong and weak banking systems? We address this issue by analyzing the performance of aggregate prudential ratios in systemic banking crises, drawing upon a large cross-country dataset. We caution against sole reliance on these indicators, and advocate supplementing them with other tools and techniques. Nonetheless, our findings offer evidence that some of the ratios can help identify systemic banking problems.