Bank regulation, property prices and early warning systems for banking crises in OECD countries

Publication date: 31 Mar 2009 | Publication type: NIESR Discussion Paper | NIESR Author(s): Barrell, R; Davis, P; Liadze, I | External Author(s): Dilruba Karim | JEL Classification: C52, E58, G21 | NIESR Discussion Paper Number: 330

Early warning systems (EWS) for banking crises generally omit bank capital, bank liquidity and property prices. Most work on EWS has been for global samples dominated by emerging market crises where time series data on bank capital adequacy and property prices are typically absent. We estimate logit crisis models for OECD countries, finding strong effects from capital adequacy and liquidity ratios as well as property prices, and can exclude traditional variables. Higher capital adequacy and liquidity ratios have a marked effect on the crisis probabilities, implying long run benefits to offset some of the costs that such regulations may impose.

Keyword tags: 
banking crises
systemic risk
early warning systems
logit estimation
bank regulation
capital adequacy