Market-based metrics are best signal for bank distress – IMF paper
Researcher finds vulnerabilities in large eurozone banks, while North America is least distressed region
Equity market valuations of bank capital are a better signal of bank vulnerability than regulatory capital ratios, a paper published by the International Monetary Fund finds.
In the paper, Will Kerry examines the performance of different metrics in assessing banking system vulnerabilities in two periods: 2001–09 and 2010–17.
Metrics based on credit default swap spreads, market capitalisation ratios, market-adjusted capital ratios and implied volatility performed the best in signalling bank
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