Are early market indicators of financial deterioration accurate for Too Big To Fail banks? Evidence from East Asia

Isabelle Distinguin (1) , Amine Tarazi (1)

1 LAPE - Laboratoire d'Analyse et de Prospective Economique

This paper investigates whether market information is reliable to predict financial deterioration of large Too Big To Fail banks in Asia. A stepwise logit model is first estimated to isolate the optimal set of accounting indicators to predict rating downgrades. The model is then extended to assess the added value of market indicators and to test for the possible presence of a Too Big To Fail effect. While some results show that market indicators bring in additional information in the prediction process, there is consistent evidence of a Too Big To Fail effect.

Mots clés: Bank; Bank Failure; Bank Risk; East Asia

Domaines: Sciences de l'Homme et Société; Economies et finances

Isabelle Distinguin, Amine Tarazi. Are early market indicators of financial deterioration accurate for Too Big To Fail banks? Evidence from East Asia. Economics Bulletin, 2010, 30 (2), pp.1680-1693. ⟨hal-00785042⟩