An empirical study on early warning systems for banking sector

Boyraz, Mustafa Fatih
Early Warning Systems (EWSs) for banking sectors are used to measure occurrence risks of banking crises, generally observed with a rundown of bank deposits and widespread failures of financial institutions. In countries with a small number of banks, for example Turkey with 48 banks (BDDK, 2011), every bank may be considered to have a systematic importance since the failure of any individual bank may carry a potential threat to lead to a banking crisis. Taking into account this fact the present study focuses on EWSs in Turkey. Since there is no single correct EWS to apply to all cases, in this study, 300 models were constructed and tested to find models as accurate as possible by using a trial-and-error process and by searching optimal feature subset or classifier methods. Empirical results indicate that prediction accuracy did not increase significantly while we got closer to the actual occurrence of bankruptcy. An important finding of the study was that trends of financial ratios were very useful in the prediction of bank failures. Instead of failures as a result of instant shocks, the banks' failures followed through a path: first a downward movement affected the efficiency of the banks' officers and the quality of management structure measured with "Activity Ratios", then the profitability of the banks measured with "Profit Ratios" declined. At last, the performance and the stability of banks' earnings stream measured with "Income-Expenditure Structure Ratios" and the level and quality of the banks' capital base, the end line of defense, measured with "Capital Ratios". At the end of study, we proposed an ensemble model which produced probability ratios for the success rates of the banks. The proposed model achieved a very high success rate for the banks we considered.


An Empirical study on fuzzy C-means clustering for Turkish banking system
Altınel, Fatih; Gaygısız Lajunen, Esma; Department of Economics (2012)
Banking sector is very sensitive to macroeconomic and political instabilities and they are prone to crises. Since banks are integrated with almost all of the economic agents and with other banks, these crises affect entire societies. Therefore, classification or rating of banks with respect to their credibility becomes important. In this study we examine different models for classification of banks. Choosing one of those models, fuzzy c-means clustering, banks are grouped into clusters using 48 different ra...
Liquidity risk in banking sector : a ratio analysis applied to Turkish commercial banks
Ayaydın, Hande; Gaygısız Lajunen, Esma; Department of Economics (2004)
The financial crises and bank runs in the past decade increased attention to the financial systems. In Turkey as in Europe banks are main financial intermediaries and financial crises occur mostly due to realization of risks in banks. Although liquidity risk is embedded into daily operations of banks unless controlled it may take banks into insolvency and even bankruptcy. This thesis aims to examine liquidity risk structure of Turkish banking sector. As a sample the domestic commercial banks in Turkey is ch...
Influence of networks on systemic risk within banking system of Turkey
Özdemir, Özge; Günel Kılıç, Banu; Department of Information Systems (2015)
Within the Turkish banking system, systemic risk, which is defined as the propagation of a financial collapse occurred in one or more institutions to other institutions as a consequence of interconnectedness, has been examined with network analysis via the capital and liquidity channel of interbank system over the period from January 2009 to October 2014. Financial shocks of individual and multiple bank failures are simulated to measure the fragility and effectiveness of banks and peer groups. Simulation re...
Socio-economic transformation of financial capital in Turkey after 1980's
Tacer, Ali Özgür; Şen, Mustafa; Department of Sociology (2004)
The study of money and banking is largely considered the purview of economics. Nevertheless, money theme cannot be neglected by social analysis for money is a social construct, embedded in social interactions. Financial system, money̕s highest level of institutionalization, also cannot be abstracted from social and political sub-structure. In this thesis we tried to look at the way in which Turkish financial transformation in early 1980̕s has found its reflections on social sphere; in terms of changing soci...
Empirical investigation of internet banking usage: The case of Turkey
Daneshgadeh, Salva; Özkan Yıldırım, Sevgi (2014-10-17)
This study empirically investigates the factors impacting internet banking (IB) usage by Turkish bank customers. A unique internet banking usage model (IBUM) was developed and validated. The initial proposed model incorporated 10 factors named usefulness, ease of use, control, social influence, compatibility, risk, website features, alliance service, awareness of service and personalization that affect internet banking usage. The initial model was tested against both measurement and structural models. The r...
Citation Formats
M. F. Boyraz, “An empirical study on early warning systems for banking sector,” M.S. - Master of Science, Middle East Technical University, 2012.