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					SYNOPSIS


Naturally, people would prefer not to imagine the failure of banks. But bank failures have happened
from time to time in many countries despite the best endeavours of managers and regulators. And it
would be unwise to ignore this possibility in Australia because a bank failure is not only very damaging
for the depositors immediately affected, but it can create a series of problems flowing well beyond that
particular institution. This flow-on damage can occur in various ways, including through effects on
depositor confidence, but perhaps the most important channel is the payments system. For instance, if a
bank in difficulty has large unsettled payment obligations to other banks, those banks will inevitably
share some of the pain. Moreover, there could then be further effects which cannot be predicted with
any precision.1

One reason for bank failure is that banks and their supervisors have to contend with a steadily growing
array of risks. Derivatives risk, operational risk and environmental risk have all come to prominence in
the past decade or so. And public relations risk is a major ongoing challenge for banks. Among all
these risks, the most significant risk in recent years is the systemic risk. This risk is partly increased by
the transformation of the international financial system which had rendered the system more crisis-
prone. Central to this transformation was a growing process of financial consolidation, that is,
concentrating financial activity and financial decision making in a few financial institutions. It had
been found that, in a study done by IMF 2, there was a high level of merger, acquisition and strategic
alliances activity in the 1990s among financial firms and this level of activity is increasing over time
with a noticeable acceleration in consolidation activity in the last three years of the decade. As result,
numbers of large and complex financial organizations had emerged and the high degree of
interdependency between these organizations would suggest the potential for systemic risks.

In order to minimize the probability of systematic risk and hence bank system instability, it is of
fundamental concern to bank supervisors, such as the RBA, that banks are doing reasonably well in
managing all the big risks by identified them clearly, measured them accurately, monitored them
continuously and kept them within prudent bounds. Bank supervision in recent years has focused much
more intensively on the quality of the systems which banks use for these tasks. However, most of these
systems have relied on explaining bank failures and banking crisis only after they have occurred, which
is clearly not a satisfactory strategy. What really needed urgently are measures that signal an increased
probability of bank failures and, more generally, of banking crises before they actually occur.
Howsoever, the goodness of these systems on assessing the bank fragility is still remained in question.

In the view of the above, this paper is presented in four separated sections which is necessary for
emphasizing on the bank in relation to systematic risk and consolidation. These four sections are:


                Systematic risk and the banks
                Costs of banking failure
                Consolidation and systemic risk
                Ability of the market to assess bank fragility




Keywords: Systemic risk, bank failures, consolidation, bank fragility




1
    Reference: Thompson, G.J. (1997). The many faces of risk in banking. Reserve Bank of Australia Bulletin - July.
2
    Reference: Group of Ten (2001). Report on Consolidation in the Financial Sector. International Monetary Fund.



                                                                                                                      1
Definition of Systematic Risk in Relation to Bank


Systemic risk in a very general sense is in no way a phenomenon limited to economics or the financial
system. In the area of economics it has been argued that systemic risk is a particular feature of financial
systems. While contamination effects may also occur in other sectors of the economy, the likelihood
and severity in banking systems is often regarded as considerably higher. A full systemic crisis in the
banking system may then have strong adverse consequences for the real economy and general
economic welfare.

In order to reach a definition of systemic risk, it is necessary to distinguish it from the definition of
systemic event and systemic crisis.3 By systemic event, it refers to the release of bad news about a
financial institution leads to considerable adverse effects on one or several other financial institutions.
A systemic event is said to be strong (weak), if a significant part of the financial institutions
simultaneously affected by them (do not) actually fail. On the other hand, systemic crisis refers to the
damages caused by systemic event to number of institutions. Accordingly, Systemic risk can then be
defined as the risk or the probability of experiencing systemic events in the strong sense. In principle,
the spectrum of systemic risk ranges from the second-round effect on a single institution to the risk of
having a systemic crisis affecting most or whole of the financial system at the upper extreme. The
geographical reach of systemic risk can be regional, national or international. The following table
summarizes these definitions and their relations:




* Reference: Bandt, O.D., Hartmann, P. (2001). What is systemic risk today?. European Central Bank.



It is in fact difficult to clearly defined systemic risk because it is ambiguous and it means different
things to different people. For example, Bank for International Settlement (BIS) defined systemic risk
as "the risk that the failure of a participant to meet its contractual obligations may in turn cause other
participants to default with a chain reaction leading to broader financial difficulties". 4 This definition
emphasizes causation as well as correlation (correlation with causation) and requires strong direct

3
    Reference: Bandt, O.D., Hartmann, P. (2001). What is systemic risk today?. European Central Bank.
4
    Reference: Bank of International Settlement (1994) p.177



                                                                                                         2
interconnections or linkages among institutions. Whereas, Nicolo and Kwast, in their paper5, defined
systemic risk as "the risk that an event or shock will trigger a loss of economic value or confidence in,
and attendant increases in uncertainty about, a substantial portion of the financial system that is large
enough to, in all probability, have significant adverse effects on the real economy." This definition is
consistent with most of the definitions of systemic risk proposed in the literature, including the
definition from BIS. Although disagreement exists over the precise definition of systemic risk, two
aspects of the concept enjoy wide agreement:


1) The negative externalities or transmission mechanisms of a systemic event (shock) extend to the
   real economy. In all but the most highly concentrated financial systems, systemic risk is normally
   associated with a contagious loss of value or confidence that spreads to parts of the financial
   system well beyond the original location of the precipitating shock. In a very highly concentrated
   financial system, on the other hand, the collapse of a single firm or market may be sufficient to
   qualify as a systemic event.

2) Systemic risk events (shocks) must be highly probable to induce undesirable real effects, such as
   substantial reduction in output and employment. In this definition, a financial disruption that does
   not have a high probability of causing a significant disruption of real economic activity is not a
   systemic risk event.


Based on Nicolo and Kwast’ s definition, two key elements can be emphasized; shocks and
transmission mechanisms. Shock can be idiosyncratic (individual) or systematic. 6 In an extreme case,
idiosyncratic shocks are those which, initially affect only one financial institution. In contrast, a
systematic shocks, in the other side of extreme, affect the whole economy. What is important to note is
that an idiosyncratic shock is insurable by diversification using a portfolio but a systemic shock cannot.
The second key element in the definition is the mechanism through which shocks transmitted from one
institution to another. In order for this to occur, the institutions must be interconnected either directly
(i.e. payment system) or indirectly (i.e. exposures in same financial markets) or both. Accordingly, the
transmission and the damages of systemic risk is likely to differ depending on both the strength of the
initial shock and on the characteristics of the means. Obviously, both the occurrences of shocks and
transmission mechanisms are uncertain, government and the banks must incorporate together to
minimize this uncertainty because the destabilizing effect can substantially harm the economy.


Applying the general definition of systemic risk above, we can defined a systemic risk in relation to
bank as an event happened as a systemic shock had caused one bank to fail and its failure has caused
other banks to become insolvent through the interconnections between them in a strong sense. There
are many forms of interconnections and shocks in relation to banks. Example of interconnection
includes the payment system and the same market that the banks exposed to (i.e. loan market). And for
shocks, there are numerous types, however, as long as the shock is in a strong sense, then it has
satisfied our definition of systemic risk.


Indeed, there are two interrelated features of the banking systems which provide an explanation for a
particular high systemic risk in the banking sector than other sectors. 7 These features include: 1)
Structure of banks, and 2) The interconnections of banks through direct exposures and settlement
systems:

1) Banks structure themselves with fixed-value deposits that can be withdrawn at any time and lend
   long-term loan to companies. Normally, banks do not need to hold too much assets in liquid forms
   to meet deposit withdrawals because the law of large numbers applies. However, this small
   fraction holding of assets may lead to bank failure when there are extraordinary high withdrawals
   and, on the other hand, long-term loan cannot be liquidated. For that reason, the probability of

5
  Reference: De Nicolo, G. and Kwast, M.L. (2002). Systemic risk and financial consolidation: Are they related?”. Journal of
Banking and Finance, vol.26, no.5 (May), pp. 861-880.
6
  Reference: Bandt, O.D., Hartmann, P. (2001). What is systemic risk today?. European Central Bank.
7
  Reference: Bandt, O.D., Hartmann, P. (2001). What is systemic risk today?. European Central Bank.



                                                                                                                               3
     bank failure depends on both the performance of loans and the confidence of the depositors on the
     performance of these loan. In the view of this, the problem is that depositors do not always receive
     all the formation about the performance of the loans, this is the case because some of the
     information are deliberately hidden by the bank from the depositors since disclosure of such
     information will lead to negative effect. For example, information on non-performing loan is
     usually hidden to depositors. If this information is disclosed to the public, depositors will rush to
     withdraw their funds and force the bank into liquidation. Conversely, this does not mean that
     hindering these information can avoid liquidation. For instance, if this information is not disclosed
     by the banks but the depositors obtain these “imperfect information” from the external source, they
     will then act rationally by withdrawing all their funds and force those banks into liquidation.

2) There is a complex interdependency among banks through the inter-bank money market and the
   payment settlement system. A payments system is needed to support the day-to-day business of the
   economy and to settle transactions in the financial markets. 8 At certain points during a business
   day, the amount involved can be very large so that the failure of one bank to meet payment
   obligations can have an immediate impact on the ability of other banks to meet their own payment
   obligations. Moreover, various techniques used in securities and derivatives markets can also
   account for large and immediate payments needs. These direct interconnections or negative
   externalities extend the systemic risk to the real economy.


In addition to above, banks may in fact unintentionally increase the systemic risk themselves. This is
actually found in a study by Viral Acharya 9, who focused on the need to examine the efficacy of bank
regulation in a theoretical framework that formalized the objective of minimizing systemic as well as
individual failure risk. His model reflected the hypothesis that banks may believe they are more likely
to be bailed out if they fail at the same time as other banks, rather than singly, and may therefore
choose to take risks correlated with those of other banks, thereby increasing the systemic risk. His
model suggests that supervision focused only on individual banks may miss the threat of systemic risk
arising from a high correlation in bank exposures.




8
  Reference: Reserve Bank of Australia. [Online] Available: http://www.rba.gov.au/PaymentsSystem/AustralianPaymentsSyst
em/about_the_australian_payments_system.html [10 Sep 2002].
9
  Reference: Acharya, V. (2000). A theory of systemic risk and design of prudential bank regulation.



                                                                                                                     4
Cost of Banking Crises


Bank crises can be very costly to the economy as a whole or parts within it. In business sense, failure of
banks can substantially effects all the related stakeholders such as the depositors, shareholders,
borrowers and competitors. Depositors are effected because they faced a risk of losing all of their
deposit or savings. Shareholders are effected because they had made a loss in their investment on
banks. Borrowers, who depend on the bank for funding may not able to find alternative source.
Competitors are effected because of the interconnections between banks that transmits systemic events.
In economic sense, the whole financial system, economy and nation can be substantially harmed in
both short-term and long-term basis. For instance: when a bank fail, depositors might not able to
withdraw all or part of their savings and company may not able to find alternative source of funding to
keep on with their projects or may have to face higher borrowing cost. Both depositors and borrowers
are forced to restructure their balance sheet by cutting cost and consumptions. Less consumption means
less demand, firms will have to cut production and reduce the price of their product in order to survive.
This leads to recession and unemployment. Output (GDP) could also fall in the short-run. Further,
since investment is reduced and without an alternative source of funding, the capacity of production
will be reduced and this further decrease the output in long-term basis. 10 In addition, since the fall in
output can be multiplied through the multiplier effect, the government may not able to estimate the
multiplier accurately and hence may proposed an ineffective policy.



                                                                                    In spite of the stakeholder and
                                                                                    output costs, bank crises can be
                                                                                    very costly in terms of fiscal costs
                                                                                    for rehabilitating the financial
                                                                                    sector and, more broadly, in the
                                                                                    effect on economic activity of the
                                                                                    inability of financial markets to
                                                                                    function effectively. The table at
                                                                                    the left shows the cost of
                                                                                    restructuring financial sectors and
                                                                                    non-performing loan in different
                                                                                    countries.


                                                                                    According to the table, resolution
                                                                                    costs for banking crises have in
                                                                                    some cases reached over 40
                                                                                    percent of GDP (i.e. Chile in year
                                                                                    1981-85), while non-performing
                                                                                    loans have exceeded 30 percent of
                                                                                    total loans (i.e. Malaysia in year
                                                                                    1985-88). In general, the finding
                                                                                    of IMF shows that the resolution
                                                                                    costs of banking crises have been
                                                                                    higher in emerging market
                                                                                    countries than in developed
                                                                                    countries (i.e. Venezuela had 17%
                                                                                    in year 1994-95 and Japan only
                                                                                    had 3% in 1990s).

*Reference: International Monetary Fund (1998) Financial Crises: Characteristics
and Indicators of Vulnerability. International Monetary Fund Working Paper.




10
  Reference: Hoggarth, G., Reis, R. and Saporta, V. (2002). Costs of banking system instability: some empirical evidence.
Journal of Banking and Finance, col.26, no.5 (May), pp.825-855.



                                                                                                                            5
Inconsistent with IMF’ s finding, a paper 11 had found that the crisis are typically lasted longer in
developed country and hence the falls in output were larger than in emerging-market countries. This is
partly because emerging-market economies must respond more quickly during banking crises as they
usually incur much more widespread bad loan problems than developed countries. In fact, this is
surprising because one of the factors that might affect the overall cost is the extent and sophistication of
financial markets and their ability to act as substitutes for bank finance, which is often non-
substitutable due to the unique intermediate functions of bank. Moreover, the study also found that the
costs drive from the failure of banks seem to be greater when accompanied with a currency crisis, this
is especially the case for nation with a fixed exchange rate regime.


As well, banks that operate under a limited liability condition, with explicit or implicit depositor
protections, are more likely to gamble when they have a low net worth. The longer these banks gamble
with public insurance, the larger will be the public sector bills. Besides, this tendency can actually
increases the real cost to the economy. This is the case because resources are directed to uneconomic
uses and the creditworthiness of the government winds up encumbered, reducing its ability to give
financial support to socially useful purposes. In contrast, banks not facing an incentive to gamble can
also increase the costs to the general society, for instance, these banks may limited the amount of credit
available and raise borrowing costs to the general economy which can slows the growth. In regard to
the size of these costs, it depends on: 1) the nature and the magnitude of the shocks that initiated the
crisis. Crises where bank losses from initial shocks are high create the risk of further relatively higher
losses; and 2) the type of actions that the authorities take to resolve the crisis. Some actions may be less
costly than others, for example, a merger of a failed institution into a viable one on assisted terms may
be less costly than closure and liquidation because it avoids the “fire-sale” disposition of relatively
illiquid assets. In addition to this, historical evidence had shown that there is a semi-strong positive
correlation (r = 0.26) between the length of banking crisis to the fall in output, but no correlation to the
fiscal cost (r = 0.04). 12


Putting the above together, it is fair to conclude that the larger the banking crisis, the larger the output
costs and the more fiscal cost are required to settle the crisis.




11
   Reference: Hoggarth, G., Reis, R. and Saporta, V. (2002). Costs of banking system instability: some empirical evidence.
Journal of Banking and Finance, col.26, no.5 (May), pp.825-855.
12
   Reference: Frydl, E.J. (1999). The length and cost of banking crises. International Monetary Fund Working Paper.



                                                                                                                             6
Consolidation and Systemic Risk 13


Potential systemic risks in the banking system vary not only across countries but also through time as
the external environment faced by banks changes and banking activities evolve. One of the marked
trends in recent years is the increasing consolidation across financial sectors and countries as well as
amongst domestic banks at an unprecedented rate. As in 1990, 337 of acquisitions by financial firms
had occurred in the G-10 countries, and this number had increased to over 900 by 1995. And the size of
each of these acquisitions had increased substantially since the mid-1990s. What is more, the banking
sector tended to dominate the merger and acquisition process in the financial sector, accounting for as
much as 58% of the value of merger and acquisition during 1990s as a whole, compared with 42% in
the case of non-bank financial institutions. However, statistic result shows that the rate of bank merger
and acquisitions is slowing down and, on the other hand, the rate of non-bank financial institution
merger and acquisitions is in fact increasing. However, given the large size of the banks as financial
institutions, the banking industry dominates financial sector merger and acquisition activity in value
terms. 14


While consolidation is at present orderly, consolidation can be associated with systemic risks related to
changes in the intensity of competition. Consolidation driven by increases in competition in banking
markets implies the forced exit of non-competitive banks. The reduction in the number of non-
competitive banks while increasing the size of competitive banks (i.e. LCBOs) at the top end of the
banking industry means the risk of systemic event is now being built into the structure of the system.
This is the case because larger banks that result from consolidation faces problems such as disparate
supervisory policies and different operational procedures. Because such banks are the ones most likely
to be associated with systemic risk, then if such banks became impaired, its failure is more likely effect
other banks and hence causes a real negative systemic effect to the economy.


A research had found that interdependency between banks are positively correlated with of
consolidation as in the case of United State, Japan and Europe.15 Areas of increased interdependency
that are most associated with consolidation include inter-bank loans, market activities such as OTC
derivatives, and payment and settlement systems. Although the research shows that consolidation
increases the connectivity between banks and markets domestically and internationally, but it does not
mean that the increased connectivity increases systemic risk. Connectivity is only a means by which
problems are transmitted. In fact, of the nature of financial market efficiency, increased connectivity
accompanied with better information and timing, may actually reduce systemic risk.


In spite of the connectivity and interdependency, consolidation can also increase systemic risk through
increasing the probability of failure of individual banks, this is especially the case for LCBOs whose
credit or liquidity problems may affect many other financial institutions. If the risk of an individual
institution is higher, this raises the probability that the institution will fail or become illiquid before
settling some of its payments obligations, exposing other institutions directly to risks as payees. Merger
and acquisitions may either increase or decrease the risk of institutions, largely depending upon
whether any diversification gains are offset by the institutions’ pursuit of additional risks. Since banks
usually have a tendency to rely more heavily on market instruments after merged or acquisitions, then
the risk had also risen due to the increase exposure to the violate market price. 16

Although consolidation potentially increase the systemic risk of the banks but it is not without its
advantage. For example, consolidation can have a positive effect on banks’ performance through
achieving economies of scale or scope and by increasing banks’ market power.

13
   Reference: De Nicolo, G. and Kwast, M.L. (2002). Systemic risk and financial consolidation: Are they related?”. Journal of
Banking and Finance, vol.26, no.5 (May), pp. 861-880.
14
   Reference: Group of Ten (2001). Report on Consolidation in the Financial Sector. International Monetary Fund.
15
   Reference: Souza, C.D. and Lai., A. (2002). The Effects of Bank Consolidation on Risk Capital Allocation and Market
Liquidity. Bank of Canada Working Paper, vol. 2002-5.
16
    Reference: Berger, A.N. and Strahan, P.E. (1998). The Consolidation of the Financial Services Industry: Causes,
Consequences, and Implications for the Future. Federal Reserve Bank of New York.



                                                                                                                           7
Ability of the Market to Assess Bank Fragility


Banking crises are difficult to identify empirically, partly because of the nature of the problem and
partly because the lack of relevant data. Although data on bank deposits are readily available for most
countries, and thus could be used to identify crises associated with runs on banks, but most major
banking problems are not originated on the liabilities side of banks’ balance sheets. Instead, they are
stem from the assets side banks’ balance sheets. This suggests that variables such as the share of non-
performing loans in banks’ portfolios, large fluctuations in real estate and stock prices, and indicators
of business failures could be used to identify crisis episodes. The difficulty is that data for such
variables are not readily available for many developing countries or are incomplete. 17


Given these limitations, there has been considerable interest in identifying configurations of economic
variables that can serve as early warning signals of crises. 18 While many economic variables have been
able to predict banking crises but the question is that whether these variables can remain significant
when applied to data sets outside the time frame used to estimate the model. If such stability can be
demonstrated, the models will be far more useful for forecasting purposes in predicting future failures.
Otherwise these variables are not a good predictor and can be misleading. As a matter of fact, these
variables or indicators are not likely that they can detect future crises sufficiently early and with a high
degree of certainty without any errors. Indeed, if such indicators could be identified they would likely
lose their usefulness because the market would take them into account (i.e. policymakers would take
actions to prevent crises from occurring). Consequently, based on the efficient market hypothesis, the
indicators would lose their ability to predict crises.


A commonly used approach as an early warning system is to identify a set of variables whose
behaviour prior to episodes of banking crises is systematically different from that during the normal
periods. By closely monitor these variables, the market may able to assess the bank fragility by
comparing the current pattern with patterns in the past with banking crises. However, one difficulty is
that it is often hard to identify which variable to use. 19 This is especially the case when the market
lacks of high-frequency data that could be used to keep track of banking fragility.


In fact, despite of what model the market used to assess bank fragility, one general problem is that the
market is facing the risk of dating crises too late or too early. Too late because financial problems
usually begin well before bank closures or bank runs occur, and too early because the peak of a crisis is
generally reached much later.20


A study 21, compared the forecasting ability of traditional early warning indicators of bank fragility
(CAMEL type balance sheet measures) with market indicators (default probabilities estimated from
equity data using Merton model and credit ratings). The indicator models were compared for banks
active in the south-east Asian countries during the recent crisis. It concluded that during that episode
information based on stock prices or on judgmental assessments of credit rating agencies did not do
better than backward-looking information contained in balance sheet data. In spite of this, the study had
evaluated these three indicators and indicated their pros and cons:




17
   Reference: International Monetary Fund (1998) Financial Crises: Characteristics and Indicators of Vulnerability. International
Monetary Fund Working Paper.
18
   Reference: Goldstein, M. (1996). Presumptive Indicators/ Early Warning Signals of Vulnerability to Financial Crises in
emerging market economies. Washington: Institute of International Economic, January 1996.
19
   Reference: Eichengreen and Rose. “Staying afloat when the wind shifts”
20
   Reference: International Monetary Fund (1998) Financial Crises: Characteristics and Indicators of Vulnerability. International
Monetary Fund Working Paper.
21
   Reference: Bongini, P., Laeven, L. and Majnoni, G. (2002). “How good is the market at assessing bank fragility?” A horse
race between different indicators”. Journal of Banking and Finance, vol.26, no.5 (May), pp.1011-1028.



                                                                                                                               8
       1) For stock market based indicators, although they react faster than the other two when new
          information arrived, but it is “too late” because the new information is already accounted into
          the market (based on the Efficient Market Hypothesis).

       2) For credit rating, the rating agencies is slow in adjusting their ratings and they often have
          relatively brief experience in assessing the risk of economic entities.

       3) For balance sheet, it is inelastic to the change of the environment because of heavy accounting
          standard. As a result, it does not provides a up-to-date indicators for the market to assess the
          entities.

Since each of these indicators have its pros and cons, the paper suggested that the market should rely
on multi-indicators, so to increase the assessment accuracy.


In summation, for a market to be effective on assessing the bank fragility, four prerequisites are
required22: 1) the market must have sufficient information, 2) the ability to process it 3) the right
incentives to process it and 4) the mechanisms to enable it to exercise effective discipline. Achieving
these requirement are not easy, questions could be raised about the current situation in relation to each
of these prerequisites. Hence authorities must have the right policy to overcome any problems arose on
the ability of market assessment.




22
     Reference: Crockett, A. “Market Discipline and Financial Stability”



                                                                                                        9
Reference:


Thompson, G.J. (1997). The many faces of risk in banking. Reserve Bank of Australia Bulletin - July.

Group of Ten (2001). Report on Consolidation in the Financial Sector. International Monetary Fund.

Bandt, O.D., Hartmann, P. (2001). What is systemic risk today?. European Central Bank.

Bank of International Settlement (1994) p.177

De Nicolo, G. and Kwast, M.L. (2002). Systemic risk and financial consolidation: Are they related?”. Journal of Banking and
Finance, vol.26, no.5 (May), pp. 861-880.

Reserve Bank of Australia. [Online] Available: http://www.rba.gov.au/PaymentsSystem/AustralianPaymentsSystem/about_t
he_australian_payments_system.html [10 Sep 2002].

Acharya, V. (2000). A theory of systemic risk and design of prudential bank regulation.

International Monetary Fund (1998) Financial Crises: Characteristics and Indicators of Vulnerability. International Monetary
Fund Working Paper.

Hoggarth, G., Reis, R. and Saporta, V. (2002). Costs of banking system instability: some empirical evidence. Journal of Banking
and Finance, col.26, no.5 (May), pp.825-855.

Frydl, E.J. (1999). The length and cost of banking crises. International Monetary Fund Working Paper.

Souza, C.D. and Lai., A. (2002). The Effects of Bank Consolidation on Risk Capital Allocation and Market Liquidity. Bank of
Canada Working Paper, vol. 2002-5.

Berger, A.N. and Strahan, P.E. (1998). The Consolidation of the Financial Services Industry: Causes, Consequences, and
Implications for the Future. Federal Reserve Bank of New York.

Goldstein, M. (1996). Presumptive Indicators/ Early Warning Signals of Vulnerability to Financial Crises in emerging market
economies. Washington: Institute of International Economic, January 1996.

Eichengreen and Rose. “Staying afloat when the wind shifts”

Bongini, P., Laeven, L. and Majnoni, G. (2002). “How good is the market at assessing bank fragility?” A horse race between
different indicators”. Journal of Banking and Finance, vol.26, no.5 (May), pp.1011-1028.

Crockett, A. “Market Discipline and Financial Stability”




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