Finance, Society and the Environment
Edited by Sabri Boubaker, Douglas Cumming and Duc K. Nguyen
chapter 6: The stability of the financial system: an analysis of the determinants of Russian bank failures
With the incidence of financial crises, the financial stability of banks has become a matter of great importance. In light of this fact, the accurate prediction of bank distress has been a central concern of bank supervisory authorities and regulators and, in addition, has received considerable attention in research. In this chapter, we identify the determinants of Russian bank failure by means of Cox proportional hazard models, with time-varying covariates and a sample of Russian banks for 2006–2013. We use an early warning system and a contemporaneous model based on the CAMELS approach to the independent variables. The overall results exhibit the expected signs, with interesting differences if we compare the results of the two models and if we compare smaller and larger banks. We also test the importance of sensitivity to market risk as a determinant of bank failure. We find, as expected, a negative sign and strong statistical significance for that variable in both models, albeit only for larger banks. Our findings suggest that the Central Bank of Russia should pay particular attention to the dynamics of CAMELS variables when assessing Russian bank solvency
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