Whose Balance Sheet is this? Neural Networks for Banks' Pattern Recognition

Carlos Leon Rincon, José Fernando Moreno, Jorge Cely

Research output: Working paperDiscussion paperOther research output

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Abstract

The balance sheet is a snapshot that portraits the financial position of a firm at a specific point of time. Under the reasonable assumption that the financial position of a firm is unique and representative, we use a basic artificial neural network pattern recognition method on Colombian banks’ 2000-2014 monthly 25-account balance sheet data to test whether it is possible to classify them with fair accuracy. Results demonstrate that the chosen method is able to classify out-of-sample banks by learning the main features of their balance sheets, and with great accuracy. Results confirm that balance sheets are unique and representative for each bank, and that an artificial neural network is capable of recognizing a bank by its financial accounts. Further developments fostered by our findings may contribute to enhancing financial authorities’ supervision and oversight duties, especially in designing early-warning systems.
Original languageEnglish
Place of PublicationTilburg
PublisherCentER, Center for Economic Research
Number of pages35
Volume2017-009
Publication statusPublished - 23 Feb 2017

Publication series

NameCentER Discussion Paper
Volume2017-009

Fingerprint

Balance sheet
Neural networks
Pattern recognition
Artificial neural network
Oversight
Supervision
Authority
Early warning system

Keywords

  • supervised learning
  • machine learning
  • artificial neural networks
  • classification

Cite this

Leon Rincon, C., Moreno, J. F., & Cely, J. (2017). Whose Balance Sheet is this? Neural Networks for Banks' Pattern Recognition. (CentER Discussion Paper; Vol. 2017-009). Tilburg: CentER, Center for Economic Research.
Leon Rincon, Carlos ; Moreno, José Fernando ; Cely, Jorge. / Whose Balance Sheet is this? Neural Networks for Banks' Pattern Recognition. Tilburg : CentER, Center for Economic Research, 2017. (CentER Discussion Paper).
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Leon Rincon, C, Moreno, JF & Cely, J 2017 'Whose Balance Sheet is this? Neural Networks for Banks' Pattern Recognition' CentER Discussion Paper, vol. 2017-009, CentER, Center for Economic Research, Tilburg.

Whose Balance Sheet is this? Neural Networks for Banks' Pattern Recognition. / Leon Rincon, Carlos; Moreno, José Fernando; Cely, Jorge.

Tilburg : CentER, Center for Economic Research, 2017. (CentER Discussion Paper; Vol. 2017-009).

Research output: Working paperDiscussion paperOther research output

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N2 - The balance sheet is a snapshot that portraits the financial position of a firm at a specific point of time. Under the reasonable assumption that the financial position of a firm is unique and representative, we use a basic artificial neural network pattern recognition method on Colombian banks’ 2000-2014 monthly 25-account balance sheet data to test whether it is possible to classify them with fair accuracy. Results demonstrate that the chosen method is able to classify out-of-sample banks by learning the main features of their balance sheets, and with great accuracy. Results confirm that balance sheets are unique and representative for each bank, and that an artificial neural network is capable of recognizing a bank by its financial accounts. Further developments fostered by our findings may contribute to enhancing financial authorities’ supervision and oversight duties, especially in designing early-warning systems.

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Leon Rincon C, Moreno JF, Cely J. Whose Balance Sheet is this? Neural Networks for Banks' Pattern Recognition. Tilburg: CentER, Center for Economic Research. 2017 Feb 23. (CentER Discussion Paper).