Early Warning System for Banking Crisis

Abstract

The purpose of this chapter is to present with an overview of the early warning systems (EWS) applied to global banking crises. Numerous past studies have focused on the EWS of banking crisis. The majority of these studies have developed a predictive model to forecast the likelihood of banking crisis. Relatively less studies in the past show an attempt to predict both crisis likelihood and timing of the crisis likelihood. Precision of timing with respects to a specific type of financial crisis is undeniably difficult. Nonetheless, knowing the timing of crisis likelihood will make policy more effective. Policy makers will be able to response promptly to the upcoming banking crisis by taking pre-emptive measures which are crucial to mitigate the impact from the crisis. Specifically, this would help to avoid the widespread of crisis. It is aware that a banking crisis can transform into a systemic banking crisis which possibly ruins the function of the domestic financial system.