The paper tests the effectiveness of financial soundness indicators (FSIs) as harbingers of banking crises, using multivariate logit models to see whether FSIs, broad macroeconomic indicators, and institutional indicators can indeed predict crisis occurrences. The analysis draws upon a dataset of homogeneous indicators comparable across countries over the period 2005 to 2012, leveraging the IMF’s FSI data base. Results indicate significant correlation between some FSIs and the occurrence of systemic banking crises, and suggest that some indicators are precursors to the occurrence of banking crises. Capturing early warning signals of potential financial or banking sector shocks has become increasingly important since the outbreak of the global financial crisis in 2007. In this regard, a critical need has arisen to test current regulatory tools and health indicators of the financial and banking sectors, and also to see how they can be improved. Financial Soundness Indicators (FSIs)comprise of a set of indicators that measure the health of a country’s financial system. In principle, the evolution of these indicators should indicate potential vulnerabilities of the financial sector and point out possible weaknesses, thereby functioning as tools of macroeconomic policy. However, in light of the recent crisis, it is clear that FSIs have not been used extensively for this purpose. This paper tests the effectiveness of FSIs as indicators of potential banking crises, using multivariate logit models to see whether FSIs, broad macroeconomic indicators, and institutional indicators can indeed predict crisis occurrences. A two-stage model is estimated to test whether volatility in indicators is correlated with the occurrence of crisis events: in the first stage, linear regressions are run on FSIs against a time trend by country and residuals obtained; in the second stage logit regressions are run on banking crisis events against the FSI residuals, lagged year-on-year differences in macroeconomic indicators, and a composite governance indicator.