A simple index of banking fragility: application to Indian data

Abstract

Purpose

Using data on Indian banks for 1997‐2007, the purpose of this paper is to develop an index of banking fragility and subsequently examine the factors affecting the index.

Design/methodology/approach

The author employs basic distributional assumptions to develop the index and subsequently, employs panel data techniques to examine the factors which affect the index.

Findings

Based on the statistical properties of the index, banks are classified as exhibiting high, moderate, and low stability. The multivariate regressions indicate an important role for banking industry variables in influencing the index.

Practical implications

The paper complements the strand of literature which has been focusing on developing indicators of banking stability and examining the factors affecting them.

Originality/value

To the author's knowledge, this is perhaps the first study for an emerging economy and more certainly for India, to examine this issue.

Citation

Ghosh, S. (2011), "A simple index of banking fragility: application to Indian data", Journal of Risk Finance, Vol. 12 No. 2, pp. 112-120. https://doi.org/10.1108/15265941111112839