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Title: Off-balance sheet exposures and banking crises in OECD countries
Authors: Barrell, R
Davis, P
Liadze, I
Karim, D
Keywords: Banking crises;Logit;Off-balance sheet activity
Issue Date: 2012
Publisher: Brunel University
Citation: Economics and Finance Working Paper, Brunel University, 12-05, Feb 2012
Abstract: Against the background of the acknowledged importance of off-balance-sheet exposures in the sub prime crisis, we seek to investigate whether this was a new phenomenon or common to earlier crises. Using a logit approach to predicting banking crises in 14 OECD countries we find a significant impact of a proxy for the ratio of banks‟ off-balance-sheet activity to total (off and on balance sheet) activity, as well as capital and liquidity ratios, the current account balance and GDP growth. These results are robust to the exclusion of the most crisis prone countries in our model. For early warning purposes we show that real house price growth is a good proxy for off balance sheet activity prior to the sub-prime episode. Variables capturing off-balance sheet activity have been neglected in most early warning models to date. We consider it essential that regulators take into account the results for crisis prediction in regulating banks and their off-balance sheet exposures, and thus controlling their contribution to systemic risk.
Appears in Collections:Economics and Finance
Dept of Economics and Finance Research Papers

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