Banking Sector Fragility and Systemic Sources of Fragility

Download or read book Banking Sector Fragility and Systemic Sources of Fragility written by Ms.Brenda Gonzalez-Hermosillo and published by International Monetary Fund. This book was released on 1996-02 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: A theoretical framework to assess the degree of fragility or, inversely, the soundness of the banking system is proposed. It is argued that, while a bank may be either solvent or insolvent at any given time, its degree of fragility must be a forward-looking measure based on the probability that it can withstand a destabilizing shock. Externalities are particularly important because they can constitute a serious source of systemic risk. The factors that determine banks’ soundness can be separated into bank-specific and those common to all banks (subject to microprudential and macroprudential considerations, respectively). The interconnection between banking crises and currency crises (in both directions) is also discussed.