Extracting leading indicators of bank fragility from market prices: Estonia focus

Yu-Fu Chen, Michael Funke, Kadri Mannasoo

    Research output: Working paperDiscussion paper

    226 Downloads (Pure)

    Abstract

    Banking reform has proved to be one of the most problematic elements of economic transition in central and eastern Europe. Therefore the paper considers the development of the Estonian banking sector and derives individual banks´ fragility scores during transition. To this end we use option-based tools and equity prices to estimate distance-to-default measures of banks´ distress probabilities. Overall, the results suggest that market indicators are moderately useful for anticipating future financial distress and rating changes in transition economies. The implication for an effective supervisory framework is to use a plurality of risk scores when assessing bank vulnerability.
    Original languageEnglish
    PublisherUniversity of Dundee
    Publication statusPublished - 2005

    Publication series

    NameDundee Discussion Papers in Economics
    PublisherUniversity of Dundee
    No.185
    ISSN (Print)1473-236X

    Keywords

    • Banking
    • Financial stability
    • Bank fragility
    • Options
    • Estonia

    Fingerprint Dive into the research topics of 'Extracting leading indicators of bank fragility from market prices: Estonia focus'. Together they form a unique fingerprint.

  • Cite this

    Chen, Y-F., Funke, M., & Mannasoo, K. (2005). Extracting leading indicators of bank fragility from market prices: Estonia focus. (Dundee Discussion Papers in Economics; No. 185). University of Dundee.