MICRO AND MACROPRUDENTIAL POLICIES IN BANKING

Laboratory 3. Individual risk estimation. Distance to Default

This exercise is based on the Stata file “GSIBs.dta”.

Requirements:
1. Compute the Z-score indicator for the sample of GSIBs.
2. Provide a table with descriptive statistics for Z-score for the whole sample, by year, and
by region. Interpret the results.
3. Provide a graph with the Z-score evolution by year. Interpret the graph.
4. Provide a graph with the Z-score evolution by year & region. Interpret the graph.
5. Display the scatter plot between Z-score and profitability (ROAE), and between Z-score
and capitalization (Tier 1 ratio). Interpret the graph.
6. Calculate the sample correlation coefficients between Z-score and ROAE, and between
Z-score and capitalization. Display the significance level of the correlation coefficient.
Interpret the outcomes.
7. Compute the following control variables (if they are not already defined in the database):
size, Loan Loss Reserve to Gross Loans, investment ratio, loans to deposits ratio
8. Calculate the sample correlation coefficients between Z-score and control variables (size,
Loan Loss Reserve to Gross Loans, investment ratio, loans to deposits ratio). Display the
significance level of the correlation coefficient. Interpret the outcomes.
9. Provide a table with descriptive statistics for Z-score, the main determinants and the
control variables. Interpret the outcomes.