An Early Warning System for Bankruptcy Prediction: lessons from the Venezuelan Bank Crisis

2007/08/26 by Loren Trigo, Trigo, Loren, Sabatino Costanzo +5
Economics, Econometrics and Finance · #Banking stability, regulation, efficiency #Computational Engineering #Credit Risk and Financial Regulations #FOS: Computer and information sciences #Finance #Global Financial Crisis and Policies #and Science (cs.CE)

paper · pdf · doi:10.48550/arxiv.0708.3465

openalex publication_date 2007/08/26 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28

Abstract

During 1993-94 Venezuela experienced a severe banking crisis which ended up with 18 commercial banks intervened by the government. Here we develop an early warning system for detecting credit related bankruptcy through discriminant functions developed on financial and macroeconomic data predating the crisis. A robustness test performed on these functions shows high precision in error estimation. The model calibrated on pre-crisis data could detect abnormal financial tension in the late Banco Capital many months before it was intervened and liquidated.

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