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CAN BANKING CRISES BE ANTICIPATED ?

Written by Philippe Narassiguin on . Posted in Economic News

Forecasting is always a difficult art, but many economists have established criteria to detect vulnerabilities of banks and possibly predict crises. These indicators are called leading warning indicators. First there is the level of bad debts of banks. Banks must promptly set aside provisions in their accounts, because if they were not repaid, it would lead to a liquidity crisis, which could affect the entire banking system, the dreaded "systemic risk". Then, the level of concentration of bank loans that must be scrutinized. Thus, banks have tended to concentrate their loans very often in the real estate sector. The collapse of the latter has generated serious identified crises ("subprime", etc..). Finally, the purchase of securities on behalf of banks should not take a too speculative twist. Losses could be substantial in the event of a stock market crash.

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