Unprecedented Financial Crisis Research Articles

A Rising Endemic within a Pandemic: Impact of Inflation on Mental Health

Madam, Inflation describes the increment in the cost of living over a certain period, occurring in light of extreme events that impact the economy. The current wave of inflation results from the coalition of events mainly stemming from the COVID-19 pandemic, producing a myriad of economic disruptions. Rising food insecurity, hikes in electricity prices, and fuel costs leave families facing an unprecedented financial crisis. Moreover, the turmoil created by the recent flooding due to record-breaking rainfall affecting Sindh, Balochistan, and Khyber Pakhtunkhwa has fuelled the current inflation wave in Pakistan. The impact of such issues can be devastating in multiple respects. The convulsion of the economy has given rise to mental health disorders nationwide, resulting in a decline in physical health. Those suffering from mental illnesses are more likely to suffer from chronic physical conditions, including Alzheimer’s disease, diabetes mellitus, thyroid disorders, and more1. A survey conducted by the American Psychological Association (APA) illustrated that 9 in 10 individuals perceive financial hardships as a major source of stress – notably greater than the perception during the pre-pandemic era2. Furthermore, it is common for stressed individuals to resort to unhealthy coping mechanisms, such as smoking3 – increasing the risk of pulmonary diseases and cancers, providing the evident association between mental and physical health. This shows the undeniable impact of the pandemic on financial constraints across the world. Pakistan’s overall disregard for mental health has recently been corroborated. The World Health Organization (WHO) introduced the “Comprehensive Mental Health Action Plan 2013-2020” to improve mental health globally. However, as per WHO’s “World Mental Health Report” analysis, most countries, including Pakistan, did not adhere to the plan, highlighting the lack of consideration towards mental health4. Moreover, Pakistan lacks sufficient resources to handle an endemic wave of mental disorders. Having one of the lowest psychiatrist-to-patient ratios worldwide – with only 500 psychiatrists serving a colossal population of 220 million. These statistics substantiate the urgency to emphasize the indispensability of psychiatry as a career opportunity5. Local authorities must invest in effective relief programs, especially for the impoverished disproportionately affected by the economic crisis. As a nation, it is paramount to possess readiness for intervention at times of psychological distress, and if left rampant, may enter a vicious cycle of deteriorating mental health, precipitating to deteriorating physical health, further crippling the economy.

P855 The impact of the severe financial crisis on drug persistence and disease course in IBD patients in Lebanon

Abstract Background Lebanon is currently going through an unprecedented financial crisis (considered as one of the worst in the world in modern times) that has affected all aspects of everyday life. In particular, the economical crash has significantly crippled the Lebanese healthcare sector, resulting in severe shortages of basic drugs and medications, most of which cannot be produced locally. Patients with chronic diseases including those with Inflammatory Bowel Disease (IBD) have been impacted most given their need for costly and chronic treatment including biologics. Methods We collected data using a 12-question web survey disseminated through social media platforms of the patient organization, I Battle Disease. The questions aimed to explore the patients’ ability to acquire the necessary medications, whether they had to alter or completely stop their treatment, and any resulting complications (forced corticosteroid use, hospitalization, or surgery) it had on the course of their disease. Results 102 patients completed the survey. The patients were nearly evenly split between Crohn’s disease (53%) and ulcerative colitis (47%). Adalimumab was the most commonly used medication before the economic crisis (30%), followed by infliximab (18%), vedolizumab (10%), ustekinumab (8%), and tofacitinib (8%). Azathioprine and 5-ASA monotherapy were used by 8% and 19% of patients respectively. All biologics and small molecules used to be covered fully by third party payors including the National Social Security Fund (38%), the Ministry of Public Health (22%), and private insurance (18%). As a result of the crisis, the majority of patients (69%) declared stopping or interrupting their treatment in the past 3 years, with most (46%) having interrupted treatment for >12 months. 22% of patients reported switching to azathioprine due to issue in access to biologics. Additionally, 69% of patients reported worsening of their condition after stopping treatment, resulting in forced steroid use (36%), switching to another medication (36%), or unscheduled hospital admission (15%). Further, 66% of participants confirmed that they had to purchase their medications from abroad or through a local private vendor using out-of-pocket foreign currencies. Finally, 12% of patients reported that they had to immigrate or seek employment abroad due to difficulty with drug access. Conclusion The recent financial and economic events in Lebanon have imposed significant challenges on patients with IBD, affecting their adherence to therapy and consequently the control of their disease. There is an urgent need for action within the public health context to improve IBD medication availability and accessibility for the Lebanese population.

Supply chain crisis management in the wake of the COVID-19 pandemic

The COVID-19 pandemic has created an unprecedented health and financial crisis across the world. This crisis has not shown any sign of abatement despite world-wide efforts to contain the spread of the virus with draconian measures such as extensive social distancing, travel restrictions, and lockdowns. An inherent difficulty in controlling this crisis has disrupted the entire global supply chain and consequently threatened our livelihood and freedom. Faced with this daunting crisis, many businesses regardless of their sizes desperately need a viable survival strategy. To fill such a need, this paper reinvents crisis management tools and develops a strategy map for mitigating the adverse impact of COVID-19 on global supply chain operations, while enhancing supply chain resilience in times of turbulence and uncertainty.

The Existing Crisis of China's Large Real Estate Enterprises and Corresponding Amelioration Strategies Based on Evergrande and Vanke

In recent years, large Chinese real estate companies, especially Evergrande and Vanke, have faced an unprecedented financial crisis and development barriers due to a series of regulatory policies introduced by the Chinese government, the decline in housing demand for long-term incentives owing to the increased in household leverage, the high leverage caused by the rapid expansion of real estate companies, and the impact of the COVID-19 epidemic. Consequently, how accurately identifying the deviations and loopholes in policies, finance, marketing models, and development strategies and then coming up with countermeasures is the key for real estate enterprises to broaden their development prospects and maintain industry prosperity. In light of this, this paper expounds on the current situation of the real estate industry from three aspects: the bubble of urban housing prices, the demand side, and the supply side. Additionally, through the analysis of real estate enterprises, this paper summarizes the risks and crises of most large Chinese real estate enterprises, such as policy restrictions on real estate enterprises, difficulties in financing and development, and the impact of COVID-19. Combined with the advantages of the development strategy of non-Chinese mainland real estate enterprises (mainly Sun Hung Kai), the corresponding solutions and suggestions are given as well. With strong universality and practicability, this paper is intended to provide feasible solutions and strategies for the financial and development prospects of large real estate enterprises in China, expecting to give some inspiration and help to Chinese real estate enterprises under multiple adverse factors such as the impact of the epidemic.

HL-100 Outcomes of Patients With Hodgkin Lymphoma During a Period of Drug Shortage in Lebanon: A Single-Center Experience

Hodgkin lymphoma (HL) represents two-thirds of all lymphomas diagnosed in Lebanon. Due to the COVID-19 pandemic and the unprecedented financial crisis, shortages of oncology drugs are now common in Lebanon. The shortage of conventional agents has created remarkable challenges for both HL patients and health care providers. We lack studies that document the outcome of HL in Lebanon during this period. To determine the outcome of HL patients treated in Lebanon during the period of drug shortages. This retrospective study included 52 HL patients diagnosed between October 2019 and December 2021 at Hôtel Dieu de France Hospital in Lebanon. Patients had classical or nodular lymphocyte-predominant subtypes. The treatment patterns, frequency of incomplete protocols, missing agents, and response to first-line treatment were analyzed. A total of 52 patients were reviewed with a median age of 35 years (range, 15-85 years); 52% were male. In this study, 65% of patients had B symptoms at diagnosis, 70% had no comorbidities, 64% had an advanced stage, 60% had bulky disease, and 90% had low- to intermediate-risk disease according to the International Prognostic Score. The nodular sclerosing subtype was the most common histological subtype (77%). The ABVD regimen was offered to 85% of patients and radiotherapy was offered to 10%. Eleven patients (22%) did not receive the full treatment per protocol due to drug shortage: 8 patients (15%), 2 patients (4%), and 1 patient (2%) had missing bleomycin, dacarbazine, and vinblastine, respectively. Of these patients, 6 (54%) received treatment without the missing agent, 4 (36%) imported the medication from an external source at their own expense, and 1 (9%) was switched to another protocol. Among 11 patients who did not receive proper therapy, the rates of complete response, partial response, stable disease, and progressive disease were 70%, 15%, 5%, and 10%, respectively. In this single-institution study from Lebanon, the outcomes of patients with HL treated during an unprecedented crisis and drugs shortage were comparable to those of previous reports. This emphasizes the resilience of the Lebanese population and adaptability despite hard conditions.

Ensuring Care Continuity in Extreme Crises: A Participatory Action Research Approach.

The Lebanese healthcare system has been facing major challenges due to an unprecedented financial crisis, socio-political instability, and the COVID-19 pandemic. This study aims to examine the impact of overlapping major crises on care continuity and to propose IT-based solutions to address current challenges and build future resilience. To this end, we adopted a participatory action research approach and conducted a two-phase qualitative study - six semi-structured interviews followed by three future workshops with local stakeholders including physicians and interns practicing in Lebanon. Through the interviews, we identified the primary consequences of the crises and the ways they impacted the continuity of care. We also identified adaptation mechanisms used by physicians and patients to ensure continuity of care. Through the future workshops, we identified various IT-based solutions that could be implemented to tackle existing challenges and support local adaptation attempts.

On recommended mouthwashes during COVID-19 pandemic: A review

Aim and Objective: One of the challenges we are currently facing is the COVID-19 pandemic. With its rapid spread around the world, it has become an unprecedented major health, human, and financial crisis. The saliva of COVID-19 patients contains the virus that can be transmitted. Various studies have shown the effect of mouthwashes in reducing the rate of transmission of the virus and, consequently, reducing the likelihood of infection. Therefore, we considered it important to examine the effect of using different mouthwashes by studying the existing data and articles.
 Materials and Methods: The study was conducted by the review method. The keywords“coronavirus, SARS-CoV-2, COVID-19, mouthwash, hydrogen Peroxide, chlorhexidine, povidone-iodine, cetylpyridinium chloride” were searched in articles and protocols in the following databases: PubMed, Scopus, Embase, Dimensions. The searched articles were submitted from January 2019 to April 2021. Only the articles in English were studied.
 Results: Among 23 reviewed studies, there were 15 review study, 4 in vitro study, two clinical trial, one letter to the editor in chief, and two studies that are, in fact, instructions of Australian and American dental community. 4 studies were published in 2021, 18 articles in 2020, and 1 article in 2019. By investigating 16 reports, Povidone-Iodine mouth wash was the most effective mouthwash ever mentioned. Hydrogen peroxide mouth rinse with nine mentions, chlorohexidine with seven mentions, cetylpyridinium chloride with four mentions, Essential oils with three mentions, and mouth rinses contains Citrox and beta-cyclodextrin, and Methylene blue with one mention was ranked next. Generally, most of the studies have recommended mouth rinses use in patients in dental clinics (or other recipients of health care services). They have emphasized their effectiveness in reducing the viral load in saliva and oral secretions.
 Conclusion: The results of the review showed that povidone-iodine mouthwash and hydrogen peroxide mouthwash can be the first and the second candidates to reduce viral load and, consequently, reduce disease transmission. However, more clinical studies are needed to confirm the results.

Confinement, Food security and consumption of subsidized products in Tunisia: Worsening trade deficit

The present paper attempts to know if the confinement in Tunisia has an impact on the consumption of subsidized products and in turn on food security and on the trade balance or not. Firstly, by analyzing the place of subsidized products in Tunisian economy. Then via the determination of limits of confinement in Tunisia specially trade deficit. Finally through the analysis of different problems given by confinement on food security and increased of percentage of cancer. According to our analysis, confinement of COVID-19 pandemic has caused an unprecedented economic, food security and financial crisis in Tunisia especially on the trade deficit witch is suffer before of various difficulty. The confinement can be considred a good solution for COVID but it have many limits on food security for Tunisian and on incresed of consumption of subsidized products in Tunisia.

Impact of Greek Financial Crisis on the Value of Euro with the Other Major World Currencies

During the Greek Financial Crisis period (December 2009), Greece, one of the members of the EUROZONE, faced an unprecedented financial crisis which triggered gradual erosion in the value of EURO with respect to major world currencies during this period. During May 2010, the European Union agreed for a bailout package for Greece which was intended to prevent a further decline in the value of Euro. This study mainly focuses on the trend in the Exchange rate of Euro against the world’s major currencies during the period of Greek financial crisis and the predictability of Future spot exchange rates using the currency Futures rates. It has been noted that on an average the variation between Future spot rate and Currency futures rates has been highest in respect of INR/EURO and the lowest in respect of GBP/EURO. This indicates that the predictability of GBP/EURO futures rate as an indicator of future spot price has been the highest. Further, it has been found that the depreciation in the EURO exchange rate during the Greek financial crisis has been the highest against INR and lowest against GBP. This has been further confirmed by the fact that the Regression Coefficient of GBP/EURO has been the lowest while that of INR/EURO has been the highest.

Tele-medicine, tele-rounds, and tele-intensive care unit in the COVID-19 pandemic

The COVID-19 pandemic has caused a worldwide health crisis, laying stress on existing health-care systems and causing an unprecedented financial crisis. In this situation, provision of homogenized, evidence-based care by all levels of health-care providers, including those in a low-resource setting, is of paramount importance. As a specialized offshoot of Tele-medicine, Tele-intensive care unit (Tele-ICU) offers an innovative solution in the care of critically ill COVID-19 patients, by off-site clinicians, using audio, video, electronic, and tele-communication links to leverage technical, informational, and clinical resources. Tele-ICU also helps overcome the shortage of expertise like intensivists in these settings and helps to take the clinical expert to the patient bedside by remote monitoring and supervision. Telemedicine applications can be classified into four basic types, according to the mode of communication, timing of the information transmitted, the purpose of the consultation, and the interaction between the individuals involved-be it doctor-to patient/caregiver or doctor to doctor. The benefits and concerns of tele-medicine have been described in detail.

Insights on the trend of the Novel Coronavirus 2019 series in some Small Island Developing States: A Thinning-based Modelling Approach

Undeniably, the Novel Coronavirus 2019, (COVID-19), has disrupted the routine functioning of the global economic and social activities. In particular, vulnerable economies such as the Small Island Developing states (SIDs) are facing unprecedented health and financial crisis. In such critical situation, some in-depth statistical models can be helpful for proper planning in terms of identifying factors that can influence significantly the number of infected COVID-19 cases and for forecasting. Modelling the COVID-19 infected series is a statistical challenge since the series are severely over-dispersed with lots of oscillations. This paper attempts a new integer-valued time series model based on the auto-regressive structure (INAR), with an oscillating Weighted Cosine Geometric (WCG) innovation term. The parameters in the proposed model constitute of the regression effects and serial auto-correlation coefficients and are estimated via likelihood and moment-based approaches. Monte Carlo simulation experiments are implemented to assess the performance and consistency of the different resulting estimators. Thereon, the INAR-WCG is applied to the COVID-19 series of various SIDs countries that include Singapore, Cape Verde, Bahrain, Mauritius and Maldives. The findings reveal that factors such as the transmission mode and the Government Stringency Index are the most influential. In terms of model fitting and forecasting, the INAR-WCG provides slightly better RMSEs than the other competing INAR-based processes.

Financial literacy and its influence on internet banking behavior

This paper presents the survey results for financial literacy among Cypriot adults and reports their financial aptitude and behaviour. Additionally, it investigates for the first time the implications of financial literacy on respondents’ usage of digital financial services, particularly internet banking (i-banking). The focus is on Cyprus, a country that experienced an unprecedented financial crisis in 2013 that resulted in a bail-in and an enormous subsequent shrinkage of the banking sector. Cypriot consumers face an ever-increasing need for financial sophistication to effectively utilise and manage digital banking services. Neverthless, financial literacy is still low in Cyprus, whereby only 37.33% of survey respondents showed proficiency in financial knowledge. The findings indicate that there is a statistically positive relationship between the levels of financial knowledge and the frequency of i-banking use. More importantly, financially illiterate consumers appear to report far more often than their financially literate peers the lack of trust in i-banking, as well as a lack of self-confidence in financial and digital skills as the main reasons for not using this service. The findings highlight the interplay between financial literacy and digital proficiency, and their implication on individuals’ use of i-banking services.

Evaluation of the Direct Economic Cost per Eradication Treatment Regimen against Helicobacter pylori Infection in Greece: Do National Health Policy-Makers Need to Care?

Helicobacter pylori (Hp) management has undoubtedly resulted in a notable economic burden on healthcare systems globally, including Greece. Its cost has never been estimated so far, especially during the recent 10-year unprecedented financial crisis. Direct medical and procedural costs for one attempt “outpatient” Hp eradication treatment were estimated as the following: (I) first-line regimens: 10 and 14 days standard triple, 10 and 14 days sequential, 10 and 14 days concomitant non-bismuth quadruple, 14 days hybrid, (II) second-line salvage regimens: 10 and 14 days levofloxacin-containing triple regimens. Treatment costs using prototypes and/or generic drugs were calculated. Drug prices were collected and confirmed from two official online medical databases including all medicines approved by the Greek National Organization for Medicines. Regimens based on generics were more affordable than prototypes and those including pantoprazole yielded the lowest prices (mean: 27.84 €). Paradoxically, 10-day concomitant and 14-day hybrid regimens (currently providing good (90–94%) first-line eradication rates in Greece) cost the same (mean: 34.76 €). The expenditures for Hp eradication treatment regimens were estimated thoroughly for the first time in Greece. These data should be taken into account by Public Health policymakers both in Greece and the European Union, aiming for a better and less expensive therapeutic approach.

International listed real estate returns: evidence from the global financial crisis

PurposeThe purpose of this paper is to analyze and revisit the risk and performance of publicly traded real estate companies from 14 countries over the period 2000–2015, marked by the unprecedented Global Financial Crisis, in presence of errors-in-variables (EIV) and illiquidity (measured by serial correlation, following Getmansky et al. (2004)).Design/methodology/approachThe authors extend the seminal work of Bond et al. (2003), and shed a new light on the relative performance of listed real estate before and after the GFC. First, the authors suggest the use of various asset pricing models (APM) including the Fama and French (2015) five-factor APM with global and country-level factors. Second, the authors implement unbiased estimators to correct for the econometric bias induced by EIV in APM. Third, the authors deal with the impact of illiquidity (measured by serial correlation) on the risk properties of international securitized real estate returns.FindingsThe findings show that post-GFC, a radical change in international listed real estate risk factors has resulted in more homogeneous markets internationally and less diversification opportunities for international investors.Practical implicationsThe authors suggest the use of robust linear APM (including the Fama and French (2015) five-factor APM) to analyze the risk and performance of publicly traded real estate companies from 14 countries over the period 2000–2015.Originality/valueThe authors analyze and revisit the risk and performance of publicly traded real estate companies from 14 countries over the period 2000–2015, marked by the unprecedented Global Financial Crisis.

Financial Literacy and its Influence on Consumers’ Internet Banking Behaviour

This study examines the level and antecedents of financial literacy and investigates its influence on consumers’ internet banking behaviour. The focus is on Cyprus, a country that experienced an unprecedented financial crisis in 2013 that caused an enormous shrinkage of the banking sector. Ever since then, banks have been investing in financial innovations, such as internet banking (i-banking), aiming to enhance customer service and efficiency in the age of financial digitalization. Notwithstanding, the results show that financial literacy is yet too low in Cyprus, whereby only 37.33% of the study’s survey adults have a good financial knowledge proficiency level. The results indicate that financially literate consumers show a strong preference for frequent use of i-banking, whereby the odds of using i-banking frequently are increased by more than 64% for one standard deviation increase in the respondents’ financial knowledge score. The findings highlight the crucial interplay of digital and financial sophistication, and their positive influence on consumers’ usage of digital financial services. The evidence from Cyprus also points to policy directions according to which digital financial education programs should be a central element in national financial literacy strategies.

Strengthening Corporate Governance Regime for Islamic Banks in Pakistan: Focusing on the Principles of Amana and Mas’ulıyah

The debate on the topic of Corporate Governance (CG) witnessed a substantial boost in the wake of the unprecedented financial crisis of 2008, and previously, the collapses of big corporations and banks in 1990s. The governance failure has been found as the key factor behind this debacle. The CG in Islamic perspective got attention from the scholars and researchers soon after the Islamic Banking Institutions (IBIs) emerged. Nevertheless, Islamic CG faced some issues such as incompetency of the board of directors, absence of effective risk management policies, moral hazards, and non-compliance of Shar¯i‘ah principles. The goal of compliance with Islamic law has also been added to the CG and the State Bank of Pakistan (SBP), as regulator, issued a Shar¯i‘ah Governance Framework (SGF) in this respect. However, a separate statutory law for the governance of IBIs is non-existent. Hence, the IBIs follow conventional regime, which failed to cater the specific requirements of IBIs. The research adopts qualitative inquiry method for deeper analysis. The governance of the IBIs should be in the hands of such competent CG players, who comply with the principles of am¯anah (trusteeship) and mas’¯ul¯iyah (accountability) in addition to other capabilities. There are certain provisions in the existing CG regime, compatible with these principles, but the same do not ensure good governance. Further, to the best of our knowledge, no CG player is punished for non-compliance with the provisions of the SGF. We suggest proper punitive actions for the Shar¯i‘ah non-compliances. Various scholars have discussed CG principles, but they did not check any legal regime to verify the degree of compatibility of its provisions with those principles. This study is an effort to fill the gap by assessing the compatibility of the provisions of the existing SGF with the Islamic principles of Am¯anah and Mas’¯ul¯iyah with respect to IBIs in Pakistan.

Between myth and reality: the euro crisis and the downfall of Silvio Berlusconi

In mid-November 2011, Prime Minister Silvio Berlusconi tendered his formal resignation to President Giorgio Napolitano. It was a humiliating ‘political exit’ for the controversial Italian leader who had been the dominant figure in Italian politics since the mid-1990s. With Italy in the throes of an unprecedented financial crisis, Berlusconi’s squabbling centre-right coalition had appeared increasingly incapable of dealing with the economic emergency engulfing the country. To restore credibility, Napolitano appointed Mario Monti who quickly put together an emergency government. Since then, the downfall of Italy’s longest-serving post-war prime minister has generated a good deal of controversy. Allegations that Berlusconi was pushed out of power by a cabal of domestic and international detractors have been rife both inside and outside Italy. But how plausible are these claims? Was Berlusconi brought down by a conspiracy orchestrated by Napolitano and instigated by Italy’s EU partners? This article will address these questions and, to do so, it will chart the dramatic events that led to his downfall and examine the international and domestic contexts in which these events took place.

How the Greek Radical Left and Extreme Right are Perceiving Democracy: A Research Attempt at a Social Epistemological Explanation

The outbreak of the unprecedented financial crisis in Greece and the ensuing fundamental change of the political landscape have brought to the fore serious problems in the functioning of the democratic order and institutions. Two political actors have played a major role in the challenging of democratic principles, namely the Radical Left Party SYRIZA and the extreme neo-fascist party Golden Dawn. The former has advanced from a small radical left party to the main opposition and - recently - the governing party, while the latter has become established, from a formerly old neo-nazi pariah party, as the third political power in parliament. This study tackles the long addressed problems of democratic order building in Greece. It is based on the working hypothesis that the malfunctioning of the democratic institutions in Greece is connected with the “pre-political” cognitive infrastructure of the Greek society, which originates in the past and is an integral element of the self-instituting political community “texture”. Our research method includes qualitative comprehensive interviews with party members and voters of SYRIZA and Golden Dawn. The main research objective is to reach an in-depth understanding of the interviewees, in the sense of uncovering their indigenous concepts concerning the democratic idea and practices, and to interpret the material in a permanent interaction between the interpretation frame and the facts concerning the research object. It will be asked, how the interviewees comprehend the key prerequisites for the construction of a democratic order, what is their socially-historically founded ideological horizon, how the links are formed between the ideas, images, models in mind and the incorporated collective memory with respect to the democratic principle. It will also be asked whether these problems with democratic understanding could be valid across party lines.

Albanian Financial System in Front of Global & Financial Crisis - A New Approach to Ensure Long-Term Sustainability

The intertwined global financial and economic crisis of 2008, unfolded the total exposure of the Albanian financial system in front of the systemic risk, by the Albanian banking system, as the absolute pillar of providing funding and intermediation in the economy. This cartel-like financing highway of the economy, developed by an oversized bank-based economy, could and practically downloads all the issues, pitfalls and inefficiencies of the banking system, on the shoulders of companies and individuals as borrowers, especially in times of economic contraction or crisis. This one-pillar financial system in Albania does not offer guarantees for a long-term sustainable economic development, which in turn, calls for a more balanced development of this system. This paper proposes that, a more balanced financial system, subject to inter sectorial competition, with the presence of ever-developing nonbank pillar, the development of capital market and its respective long-term instruments and institutional investors, along with new areas of banking business (agriculture funding, private banking, etc.) could make a valuable contribution, not only to the sustained economic growth, increased competition, but also in alleviating the factors and premises, which ignited and energized the unprecedented global & financial crisis of 2008.

Modeling Banks’ Probability of Default

The unprecedented financial crisis of 2008-2009 has called attention to limitations of existing methods for estimating the default risk of financial intuitions. Over the past decade, we have had considerable success at predicting default and credit relative value using Merton-type structural models and Hybrid Probability of Default models. However, generating accurate model-based estimates of default probabilities (PDs) for financial firms has proven difficult. To address this need, I built and tested a time-adaptive statistical model that predicts the default probabilities of banks. The model is a logistic regression whose input variables are selected based on their past effectiveness at predicting bank failures and whose inclusion in the model and weights are to be updated quarterly. Model performance at discriminating between defaults and non-defaults was evaluated for horizons of one to five years using a sequence of annual walk-forward out-of-sample tests from 1992 to 2012. I tested the ability of the model to predict absolute default rates out to five years and, except for underestimating the high bank default rates during the credit crisis, the models perform well at estimating the annual bank default rates. Because most default models provide little benefit over agency ratings for low-rated credits, I examined the performance of the model to Kroll agency ratings only for those banks rated above single-B-minus or above single-C-minus. Although default predictions from agency ratings fall off rapidly for banks rated at or above single-B and single-C, the time-adaptive statistical model predictions deteriorate far less. Accuracy at predicting bank defaults using agency ratings decreases to near chance at a prediction horizon of five years, but the time-adaptive statistical model continues to perform well above chance at all horizons. I also present a detailed analysis of the contributions of financial variables to model outputs by year (2000-2012) and tenor (1-5 years) and evaluate the consistency of variable contributions over time. The model performs favorably at predicting defaults, even relative to the best non-financial corporate default models, with a 97% accuracy ratio (AR) at one year prior to default, and decreasing, but still above-chance predictive power out to five years. I find that banks’ quality of assets and return on equity are most important for predicting near term defaults, giving way at longer horizons to operating income and the yield on earning assets.