Banking Fragility in Colombia: An Empirical Analysis Based on Balance Sheets
The series Working Papers on Economics is published by the Office for Economic Studies at the Banco de la República (Central Bank of Colombia). The works published are provisional, and their authors are fully responsible for the opinions expressed in them, as well as for possible mistakes. The opinions expressed herein are those of the authors and do not necessarily reflect the views of Banco de la República or its Board of Directors.
In this paper, we study the empirical relationship between credit funding sources and the financial vulnerability of the Colombian banking system. We propose a statistical model to measure and predict banking-fragility episodes associated with credit funding sources classified into retail deposits and wholesale funds. We compute the probability of financial fragility for both the aggregated banking system and the individual banks. Our approach performs a Bayesian averaging of estimated logit regression models with monthly balance sheet data between 1996 and 2013. The results show the increasing use of wholesale funding to support credit expansion is a potential source of financial fragility. Therefore, monitoring credit funding sources could provide an additional tool to warn against banking disruptions.
The views expressed in the paper are those of the authors and do not represent those of the Banco de la República or its Board of Directors.
Updated: 06/06/2014 10:48
