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European Banking Distress and EMU: Institutional and Macroeconomic Risks
Author(s) -
Hutchison Michael M.
Publication year - 2002
Publication title -
scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/1467-9442.00292
Subject(s) - economics , probit model , distress , sample (material) , ordered probit , probit , multivariate statistics , multivariate probit model , financial system , bank failure , monetary economics , financial stability , econometrics , ecology , chemistry , statistics , mathematics , chromatography , biology
Financial stability in Europe has received renewed attention with the advent of EMU. This paper examines whether EU country banking systems are particularly vulnerable to systemic risk. Our approach is to explore episodes of banking sector distress for a large sample of countries, highlighting the experience of the EU. We estimate multivariate probit models linking the likelihood of banking problems to a set of macroeconomic variables and institutional characteristics such as aspects of bank supervision and regulation, restrictions on bank portfolios, and development of the banking system. Given these characteristics, the model predicts a low probability of banking sector distress in EMU countries. JEL classification : G 21; E 44; F 41