Document Type
Article
Abstract
We develop a joint default probability index to signal potential systemic risks in the highly concentrated Indonesian banking industry. To build the index, we estimate bank-level tail risks using monthly bank financial reports. We use the copula approach to derive the joint multivariate dependencies at the bank level, as reflected in the monthly financial reports. Our results, which are based on a sample of 104 banks fromDecember 2003 to April 2020, show joint multivariate dependencies at the bank level suggesting that the standard univariate normal distribution is unsuitable for capturing tail risks of individual banks. Our index accurately captures the global financial crisis of 2007-2008 indicating that it is a valid joint default probability index. Further, our index also signaled a higher degree of joint default before the COVID-19 outbreak in2020, suggesting that it is a good indicator of potential systemic risk in the economy.
Recommended Citation
Husodo, Zaafri Ananto; Wibowo, Sigit Sulistyo; Prasetyo, Muhammad Budi; Arief, Usman; and Muhajir, Maulana Harris
(2020)
"ESTIMATING A JOINT PROBABILITY OF DEFAULT INDEX FOR INDONESIAN BANKS: A COPULA APPROACH,"
Bulletin of Monetary Economics and Banking: Vol. 23:
No.
3, Article 2.
DOI: https://doi.org/10.21098/bemp.v23i3.1358
Available at:
https://bulletin.bmeb-bi.org/bmeb/vol23/iss3/2
First Page
389
Last Page
412
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License
Country
Indonesia
Affiliation
University of Indonesia
