Leading indicators of systemic banking crises: Finland in a panel of EU countries1. Issue 1 (5th January 2015)

• Record Type: Journal Article
• Authors: Lainà, Patrizio; Nyholm, Juho; Sarlin, Peter
• Is Part Of: Review of financial economics. Volume 24:Issue 1(2015)
• Page Start: 18
• Page End: 35
• Publication Date: 2015-01-05
• Subjects: Leading indicators -- Macro‐financial indicators -- Banking crisis -- Signal extraction -- Logit analysis; E440 -- F300 -- G010 -- G150 -- C430; Business -- Periodicals; Economics -- Periodicals; Business; Economics; Electronic journals; Periodicals; 332.05
• DOI: 10.1016/j.rfe.2014.12.002
• Languages: English
• ISSNs: 1058-3300

Abstract

Abstract: This paper investigates leading indicators of systemic banking crises in a panel of 11 EU countries, with a particular focus on Finland. We use quarterly data from 1980Q1 to 2013Q2, in order to create a large number of macro‐financial indicators, as well as their various transformations. We make use of univariate signal extraction and multivariate logit analysis to assess what factors lead the occurrence of a crisis and with what horizon the indicators lead a crisis. We find that loans‐to‐deposits and house price growth are the best leading indicators. Growth rates and trend deviations of loan stock variables also yield useful signals of impending crises. While the optimal lead horizon is three years, indicators generally perform well with lead times ranging from one to four years. We also tap into unique long time‐series of the Finnish economy to perform historical explorations into macro‐financial vulnerabilities.