Monitoring banking sector fragility: A multivariate logit approach

This article explores how a multivariate logit model of the Probability of a banking crisis can be used to monitor banking sector fragility. The propo sed approach relies on readily available data, and the fragility assessment has a clear interpretation based on in-sample statistics. The model has be tter in-sample performance than currently available alternatives, and the m onitoring system can be tailored to fit the preferences of decisionmakers r egarding type I and type II errors. The framework can be useful as a prelim inary screen to economize on precautionary costs.