Finance and Financial Management Commons^™

How Good Is The Market At Assessing Bank Fragility? A Horse Race Between Different Indicators, Paola Bongini, Luc Laeven, Giovanni Majononi

Paola Bongini

For a sample of individual banks, active in the East Asian countries during the years 1995-1998, we explore the performance of three sets of indicators of bank fragility computed on the basis of publicly available information. We compare the behavior of traditional “early warning” indicators, based on balance sheet information, with that of implicit deposit insurance premia, based on the stock prices dynamics, and with the behavior of credit rating agencies’ assessments. We find significantly different patterns among the three groups of indicators in their ability of forecasting financial distress at both a specific point in time and through time. …