ESRI Discussion Paper Series No.349 Predicting the Probabilities of Default for Privately Held Banks: The Case of Shinkin Banks in Japan
Abstract
Using the statistical relationships between market values of banks’ assets and their volatilities that are implied from banks’ shareholders’ values of publicly held banks and their financial statement-based variables, which are used to compute banks’ probabilities of default, we conduct out of sample predictions for these two variables for the sample of privately held shinkin banks. We, then, use estimates of these two variables to compute shinkin banks’ probabilities of default. We find that estimated probabilities of default complement the regulatory capital adequacy ratio in identifying banks to fail in the near future.
JEL Classification: G21, G22
Keywords: probability of default, privately held bank
Structure of the whole text(PDF-Format 1 File)
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page1Abstract
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page21. Introduction
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page52. Empirical Methodology
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page93. Data
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page124. Results
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page124.1. Overall results
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page134.2. Estimated PD, IPP and leverage for ex-post failed shinkin banks
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page175. Conclusion
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page19References
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page21Tables
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page21Table 1. Independent Variables for Regressions of Logarithms of χ (Leverage) and σν(Volatility of the Market Value of Assets) and Their Definitions.
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page22Table 2. Descriptive Statistics of Stock Market Based Variables and Independent Variables Used for the Regressions of Logarithms of χ (Leverage) and σν (Volatility of the Market Value of Assets) for Listed Regional Banks
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page23Table 3. The Sample Size and the R-squared for Every Fiscal Year in the Sample Period of FY1989 through FY2016
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page24Table 4. Descriptive Statistics of Shareholder Value Implied Variables and Failure Risk Measures
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page25Table 5. The List of Failed Shinkin Banks
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page26Table 6. The values for the DD, the PD, the IPP, Leverage and the Capital Adequacy Ratio for Three Consecutive Fiscal Years Ending in the Last Year, for Which at Least IPP and Leverage Are Available, Leading to A Year of A Bank’s Failure: 19 Failed Shinkin Banks
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page30Figures
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page30Figure 1.1. The Trends of Aggregate PD
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page31Figure 1.2. The Trends of Aggregate IPP
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page32Figure 1.3. The Trends of Aggregate Leverage
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