Study Of Commercial Banking Crisis Early Warning System

Bank crisis has a long history, yet in the recent years, did it become a world-widephenomenon. Many countries have experienced bank sector distress of variousdegrees of severity, and some have suffered repeated bouts. The bank crises cause alot of costs and loss to a country's economy and social welfare, so, it is very importantto study the early warning system (EWS) of bank crisis. To study the EWS of bank crisis, it is necessary to learn the theory of bank crisis.Bank crisis is caused by many factors and here the author depicts the bank crisis as acycle. First, as a financial sector, the bank is fragile to all kinds of risks anddisturbances; Second, the problems caused by symmetric of information such asmoral hazard are also exist in bank sector, which make the bank sector face more riskssuch as market risk, credit risk and so on, the risks make the bank sector moreinclined to bank crisis. Third, the change of institution and the liberalization offinance make the bank sector faced more uncertainties and risks, which lead to thebanking crises. It is especially common in the developing countries. Fourth, themacroeconomic disturbance is also an important factor in the evolutions of bank crisis.The empirical results suggest that macroeconomic variables largely determine thetime of bank failure. Fifth, the management of a bank is also a determined factor, onlythe above factors combine with the weak management of a bank, will the bank burstinto crisis. sixth, a important factor is "contagion", the contagion makes a single bank's crisis become system crisis。 In the following chapter ,the author study the ante-crisis character of some bankcrises, such as the US bank crisis, Nordic bank crisis , UK bank crisis ,Japan bankcrisis and the south-east bank crisis, some of the bank crisis are also "twin crisis",which is together with currency crisis or debt crisis. all these bank crises show somecommon ante-crisis characters: first, before the bank crisis broke out, themacro-economy are with "bubble"to some extent, when the macro-economy wentdisrupts, the bank crisis then broke out; second, before the bank become failure, thebank's loan increase rapidly, part of the loan goes to the more risky areas, whichmeans more loans are to become non-performing loans, so the common ante-crisischaracters of the failed bank are the increase of non-performing loans and thedecrease of the capital . Bank crisis brings great costs and losses to the country and society. first, thedirect costs the bank crisis brings is the large amount of fiscal spending which is usedto save the failed bank, the statistics show that average fiscal spending is about10-15% of GDP , the indirect losses the bank crisis brings include the slow-down ofthe GDP growth, the increase of the unemployment rate, etc. because the bank crisisbrings so much costs and losses to a country and society, many countries and worldorganization draw much attention to the establishment of early warning system ofbank crisis, with which the bank crisis can be prevent from breaking out. The current early warning systems can be divided into three categories: the bankrating system, the financial ratio analysis system and the statistical system. The mostcommon used bank rating system is the CAMEL system, which evaluate the bank infive aspects: C-capital, A-asset, M-management, E-earning and L-liquidity, if thegrade of the bank is become worse, one can predict that the bank may fall into crisis.the bank rating system to some extend can predict a proportion of bank failure, but isnot accurate enough. The financial ratio analysis system is to compare the ratios of abank with the sample banks to decide if the bank is to become failure, to establishsuch system one need a lot of failed banks to collect the data. The statistical system isusing the statistical technology to establish the relationships of certain leadingindicators and bank crisis, the system can either predict wh...