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The effect of integrating micro- and macro-level indicators on the performance of Early Warning Systems for systemic banking crises: A literature review
Remoortere, Esmee van (2025) The effect of integrating micro- and macro-level indicators on the performance of Early Warning Systems for systemic banking crises: A literature review.
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| Abstract: | The underestimation of systemic risk due to inadequate risk prediction obstructed effec-tive risk management during historical financial crises. In response, Early Warning Sys-tems (EWSs) emerged to provide timely warnings and support decision-making. And while EWSs have become essential tools for anticipating financial instabilities, models focus on either bank-specific or macroeconomic events, rather than in combination. This limits their ability to capture the complex nature of systemic risk, as was seen during previous crises. To address this gap, this study investigated how integrating micro- and macro-level indicators affects the predictive performance of EWSs for systemic banking crises. To do so, a structured literature review covering 72 publications was conducted, of which 38 in-cluded models where quantitative performance comparison was possible. Building on ex-isting literature, this study contributes by going beyond model techniques and examines how performance is affected by three separate levels of indicators: micro, macro, and those two combined. The study finds that integrated models outperform macro-level mod-els in predicting systemic banking crises, with 19% higher recall and 8% lower miss rates. Compared to micro-level models, which focus on more frequent firm-level events, inte-grated models perform similarly, just 4% lower in recall and 5% higher in miss rate. The strong performance of integrated EWSs demonstrates the added value of combining mi-cro- and macro-level indicators and reinforces their importance in capturing the complex nature of systemic events. |
| Item Type: | Essay (Bachelor) |
| Faculty: | BMS: Behavioural, Management and Social Sciences |
| Subject: | 85 business administration, organizational science |
| Programme: | International Business Administration BSc (50952) |
| Link to this item: | https://purl.utwente.nl/essays/106781 |
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