Analysis of the Comprehensive Early Warning System for Iranian Banking Network

Due to the recent crisis in the Iranian banking system and instability in the macroeconomic conditions, the necessity to develop a comprehensive document of the early warning system is important for policymakers. This paper uses the experiences of famous Central Banks and their supervision, analyses methodology for the monitoring of early warning system in the Iranian banking sector. First, a macro-econometric model is presented that estimates the probability of downgrading the financial health of a bank. Second, using survival and hazard model, we estimate time period of banking failure. The results show that real economy's variables such as services and industries value-added and nominal variables such as money base and nominal interbank interest rates have significant impacts on the probability of deterioration in the financial health. These variables are significant with negative sign cause reduction in the period of exposure for the banking system. An increase in some items in the bank financial statements like the non-performing loans and the bank’s size, reduce the loading time of the deterioration of bank financial situation. In other words, it leads to increase the speed of the bank exposure