Explaining bank distress in Eastern European transition economies

This paper considers the joint role of macroeconomic, structural and bank-specific factors in explaining the occurrence of banking problems in the nineteen Eastern European transition countries over the last decade. With data at the individual bank level we show, using a discrete time survival model, that all three factors interact in their impact and have a rich dynamic profile, which underlines the highly volatile cycles challenging the stability of banks in this region. A fragile funding basis accompanied by high exposure to market risk in an environment of reforms and macroeconomic disturbances is the typical precursor of bank distress. (c) 2008 Elsevier B.V. All rights reserved.