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Banking stability measures

By Miguel A. Segoviano and Charles Goodhart


The recent crisis underlined that proper estimation of distress-dependence amongst banks in a global system is essential for financial stability assessment. We present a set of banking stability measures embedding banks’ linear (correlation) and nonlinear distress-dependence, and their changes through the economic cycle, thereby allowing analysis of stability from three complementary perspectives: common distress in the system, distress between specific banks, and cascade effects associated with a specific bank. Our approach defines the banking system as a portfolio of banks and infers its multivariate density from which the proposed measures are estimated. These can be provided for developed and developing countries

Topics: HF Commerce, HG Finance
Publisher: Financial Markets Group, London School of Economics and Political Science
Year: 2009
OAI identifier:
Provided by: LSE Research Online

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