What Drives Banking Sector Fragility in the Eurozone? Evidence from Stock Market Data


Stefan Eichler, Faculty of Business and Economics, Chair for Monetary Economics, Technische Universitaet Dresden, 01062 Dresden, Germany, email Stefan.eichler@tu-dresden.de


This article explores the determinants of banking sector fragility in the eurozone. For this purpose, a stock-market-based banking sector fragility indicator is calculated for eight member countries from 1999 to 2009 using the Merton model (1974). Using a panel framework, it is found that the macroeconomic environment, the structure of the banking sector and the intensity of banking regulation all have an effect on banking sector fragility in the eurozone.