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This paper uses a Merton-type estimate of the probability of default (PoD) for the main banks in a sample of Organization for Economic Cooperation and Development and middle-income countries as a proxy for the fragility of their banking systems. Based on theory and stylized facts, the paper explores a range of financial and real variables that explain such PoDs across time. We find property price fluctuations and bank credit to be important explanatory factors. There is two-way interaction between these variables and a clearer relationship when the variables are entered as a deviation from trend. The lag structure between such developments and PoDs is long and varies widely across countries. The paper assesses the implications of these findings for economic policy.

Asset allocation -- Econometric models. --- Credit -- Econometric models. --- Electronic books. -- local. --- Finance --- Business & Economics --- Investment & Speculation --- Asset allocation --- Credit --- Econometric models. --- Borrowing --- Allocation of assets --- Money --- Loans --- Investments --- Portfolio management --- Banks and Banking --- Macroeconomics --- Money and Monetary Policy --- Real Estate --- Statistics --- Semiparametric and Nonparametric Methods --- Time-Series Models --- Dynamic Quantile Regressions --- Dynamic Treatment Effect Models --- Diffusion Processes --- Econometric Modeling: General --- Optimization Techniques --- Programming Models --- Dynamic Analysis --- Methodology for Collecting, Estimating, and Organizing Macroeconomic Data --- Data Access --- Business Fluctuations --- Cycles --- Prices, Business Fluctuations, and Cycles: Forecasting and Simulation --- Financial Markets and the Macroeconomy --- Money Supply --- Money Multipliers --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Price Level --- Inflation --- Deflation --- Nonagricultural and Nonresidential Real Estate Markets --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Data Collection and Data Estimation Methodology --- Computer Programs: Other --- Monetary economics --- Property & real estate --- Banking --- Econometrics & economic statistics --- Asset prices --- Bank credit --- Land prices --- Prices --- Financial statistics --- Economic and financial statistics --- Housing --- Banks and banking --- Japan