Calculating the probability of failure of the Norwegian banking sector

Abstract

We calculate the probability of failure of the Norwegian banking sector both before and after the Norwegian banking crisis. Thus unlike previous studies of this kind we choose a sample period and banking sector where there were significant numbers of bank failures. This approach therefore gives us a better indication of the quality of the calculated risk measure. Our results indicate evidence of a steep increase in the risk inherent in this sector beginning in 1984 following the deregulation of Norwegian banks in the mid 1980s. We also find that risk levels in the sector fall after 1992 and continue to fall to pre-1982 levels by the end of our sample in December 1995.