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Pré-Publication, Document De Travail Année : 2018

Bank insolvency risk and Z-score measures: caveats and best practice

Vincent Bouvatier
Frank Strobel
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Résumé

We highlight caveats arising in the application of traditional ROA-based Z-scores for the measurement of bank insolvency risk, develop alternative Z-score measures to resolve these issues , and make recommendations for best practice for the US/Europe based on the experience of the …nancial crisis of 2007-2008. Using a probabilistic approach (i) our novel regulatory capital Z-score dominates traditional Z-score measures for both US/Europe; (ii) Z-scores computed with exponentially weighted moments dominate those with moving moments for the US sample, but not for Europe. For both US/Europe, using a multivariate logit approach (i) allows computation of augmented Z-scores that provide probabilities of distress that better discriminate between distressed/surviving banks than the probabilistic approach; (ii) suggests that the ROA-based Z-score using current values of the capital-asset ratio is best, calculated either with moving or exponentially weighted moments.
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Dates et versions

hal-01937929 , version 1 (28-11-2018)

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  • HAL Id : hal-01937929 , version 1

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Vincent Bouvatier, Laetitia Lepetit, Pierre-Nicolas Rehault, Frank Strobel. Bank insolvency risk and Z-score measures: caveats and best practice. 2018. ⟨hal-01937929⟩
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