Abstract
AbstractThe aim of this paper is to predict banking distress resulting from capitalization problems in order to justify the viability of Prompt Corrective Actions in Europe. In particular, I examine the impact of the “safety net” and the role of rating agencies through negative credit watches, using a binomial logit model in order to predict European commercial banks capital stress and to test the contribution of institutions and regulatory factors. I also study the impact of concentration and moral hazard generated by deposit insurance on banking stability. My results are in line with previous findings in the literature and demonstrate not only a negative influence of institutional and regulatory factors on European banking systems' distress probability but also a significant role for the rating agencies. In addition, the quality of national regulatory frameworks including supervision restrains considerably moral hazard and excessive risk taken by European commercial banks.
Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
