This paper proposes a framework for deriving early-warning models with optimal out-of-sample forecasting properties and applies it to predicting distress in European banks. The main contributions of the paper are threefold. First, the paper introduces a conceptual framework to guide the process...

This paper assesses the sensitivity of solvency stress testing results to the choice of credit risk variable and level of data aggregation at which the stress test is conducted. In practice, both choices are often determined by technical considerations, such as data availability. Using data for...

Although the probability of default (PD) modeling has reached a great maturity in both academia and business, for the Italian case we demonstrate that banks' available PD models would be misleading if today applied directly to Italian banks. We argue that what determines the PD of Italian banks,...

We generalize the stochastic specification to account for first-order vector autocorrelation in the system of portfolio demand equations and test for the validity of the "no autocorrelation" restrictions, in addition to the restricitions on the demand system implied by theory. When testing for...

We model EU countries' bank ratings using financial variables and allowing for intercept and slope heterogeneity. Our aim is to assess whether "old" and "new" EU countries are rated differently and to determine whether "new" ones are assigned lower ratings, ceteris paribus, than "old" ones. We...

We model EU countries' bank ratings using financial variables and allowing for intercept and slope heterogeneity. Our aim is to assess whether “old” and “new” EU countries are rated differently and to determine whether “new” ones are assigned lower ratings, ceteris paribus, than...

An evolutionary model of the bank size distribution is presented based on the exchange and expansion of deposit money. In agreement with empirical results the derived size distribution is lognormal with a power law tail. The key idea of the theory is to regard the creation of money as a slow...

An extensive empirical literature has documented the positive growth effects of equity market liberalization. However, this line of research ignores the impact of financial integration on a category of firms crucial for economic development, i.e. the small entrepreneurial firms. This paper aims...

We show how price leadership bans, imposed as part of the European Commission's State aid control on all main mortgage providers except the largest bank, shifted the Dutch mortgage market from a competitive to a collusive price leadership equilibrium. In May 2009, mortgage rates in the...