Bank insolvency risk and time-varying Z-score measures

Abstract

International audienceWe compare the di¤erent existing approaches to the construction of time-varying Z-score measures, plus an additional alternative one, using a panel of banks for the G20 group of countries covering the period 1992–2009. We examine which ways of estimating the moments used in these di¤erent ap-proaches best …t the data, using a simple root mean squared error criterion. Our results are supportive of our alternative time-varying Z-score measure: it uses mean and standard deviation estimates of the return on assets cal-culated over full samples combined with current values of the capital-asset ratio, and is thus straightforward to implement