Macroeconomic resilience and bankruptcy of the banking system (Cross-country study)

Madani Tonekaboni, Sayed Soheib; Adibpour, Mehdi; Mahmoudzadeh, Mahmood; Ghavidel, Saleh

doi:10.22075/jem.2019.17963.1324

Macroeconomic resilience and bankruptcy of the banking system (Cross-country study)

Document Type : Original Article

Authors

Sayed Soheib Madani Tonekaboni ¹

Mehdi Adibpour ²

Mahmood Mahmoudzadeh ²

Saleh Ghavidel ²

¹ Ph.D. Student in Economics, Department of Economics, University of Islamic Azad, Firoozkooh Branch

² Assistant Professor in Economics, Department of Economics, University of Islamic Azad, Firoozkooh Branch

10.22075/jem.2019.17963.1324

Abstract

The purpose of this paper is to estimate the effect of macroeconomic resilience on the probability of bankruptcy of the banking system in its various frameworks (Briguglio - Boorman) using annual data (2005-2016) for 125 countries in the form of models Logite and Probit. Overall results show that the increases of economic resilience and economic growth rate have reduced the probability of bankruptcy. Based on Briguglio model, the effect of increasing good governance and market efficiency on the probability of bankruptcy is negative, and increasing macroeconomic instability has increased the probability of bankruptcy. In the pattern of Boorman, The growth of variables such as good governance, the health of monetary policy, foreign power, export independence, bank credit and reserves have reduced the probability of bankruptcy and increased budget deficits have increased the probability of bankruptcy. Also, the improvement of institutions with the effect on macroeconomic instability has reduced the probability of bankruptcy. The effect of nonperformance loan has been positive and the effect of the ratio of capital adequacy ratio, margin of profit, return on assets and the existence of cash assets is negative.

Keywords

Economic Resilience

Good Governance

Nonperformance loan

Bankruptcy Bank