The market's view on the probability of banking sector failure: cross-country comparisons
- Publisher:
- Elsevier
- Publication Type:
- Journal Article
- Citation:
- Journal of International Financial Markets, Institutions & Money, 2004, 14 (5), pp. 419 - 438
- Issue Date:
- 2004-01
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Hall and Miles (1990) suggest an approach of estimating default probabilities of banks using
stock market information, and in this paper we apply an aggregated version of their approach to
banking sectors around the world in both developed and emerging economies. We study the market's
assessment of the probability of systemic banking crises world wide over the last decade, including
the Asian crisis 1997-1998. In addition, we investigate whether there is a relationship between the
failure probability and institutional features of the actual banking sector. The quality of governance
and the degree of law and order in a country is found to be significantly negatively related to the
market based failure probabilities as is an explicit deposit insurance during periods of crisis.
© 2004 Elsevier B.Y. All rights reserved.
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