FORMING A SYSTEM OF INDICATORS AND THRESHOLD VALUES FOR EARLY DIAGNOSIS OF BANK INSOLVENCY

Abstract

This article substantiates an approach to building a coherent system of indicators and threshold values for the early diagnosis of bank insolvency and outlines principles for its use in supervisory oversight and internal risk governance. Early diagnosis is treated as an integrated early-warning infrastructure in which data are converted into indicators, indicators into threshold corridors, and corridors into decision triggers and corrective actions. The proposed indicator panel is structured by key channels of vulnerability: capital adequacy, capital quality and buffers; asset quality and loss-absorption capacity (NPL contour, provisioning coverage, restructurings, credit concentrations); liquidity resilience and funding stability (liquidity buffers, maturity structure, depositor outflow sensitivity); profitability and operating efficiency; market sensitivity and structural exposures; and governance and controls as qualitative leading signals. Threshold setting follows a combined logic: baseline boundaries rely on regulatory limits and internal risk-appetite targets; early-action buffers create room for timely intervention; peer-based statistical corridors benchmark banks within homogeneous groups; and trend-based triggers capture accelerating deterioration even when levels remain within acceptable ranges. To balance false alarms against missed crises, escalation is activated via multi-indicator triggers and explicit signal-reconciliation rules across blocks. The paper delivers a traffic-light risk card template and an escalation matrix linking risk zones to supervisory communication intensity and a minimum package of recovery-oriented actions. Future work should calibrate corridors on Ukrainian banking data, implement cycle-adjusted threshold review, and deepen integration with recovery planning and stress testing. The framework also specifies minimum data requirements, monitoring frequency, and documentation standards (indicator passports) to support consistent interpretation and operational accountability across institutions.