Predicting Vulnerabilities in the EU Banking Sector: The Role of Global and Domestic Factors

38 Pages Posted: 5 Nov 2020

See all articles by Markus Behn

Markus Behn

European Central Bank (ECB)

Carsten Detken

European Central Bank (ECB)

Tuomas Peltonen

European Systemic Risk Board

Willem Schudel

De Nederlandsche Bank

Date Written: November, 2016

Abstract

We estimate a multivariate early-warning model to assess the usefulness of private credit and other macro-financial variables in predicting banking sector vulnerabilities. Using data for 23 European countries, we find that global variables and in particular global credit growth are strong predictors of domestic vulnerabilities. Moreover, domestic credit variables also have high predictive power, but should be complemented by other macro-financial indicators like house price growth and banking sector capitalization that play a salient role in predicting vulnerabilities. Our findings can inform decisions on the activation of macroprudential policy measures and suggest that policy makers should take a broad approach in the analytical models that support risk identification and calibration of tools.

Keywords: early-warning model, banking crises, signalling approach, systemic risk

JEL Classification: G01, G21, G28

Suggested Citation

Behn, Markus and Detken, Carsten and Peltonen, Tuomas and Schudel, Willem, Predicting Vulnerabilities in the EU Banking Sector: The Role of Global and Domestic Factors (November, 2016). ESRB: Working Paper Series No. 2016/29, Available at SSRN: https://ssrn.com/abstract=3723375

Markus Behn (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Carsten Detken

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
0049 69 13440 (Phone)
0049 69 1344 6000 (Fax)

Tuomas Peltonen

European Systemic Risk Board ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Willem Schudel

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

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