Geo-financial stability of the global banking system

Abstract

The development of globalization creates a need for diagnosis of financial stability at the global level. This study aims to analyze the financial stability of the global banking system and identify threats to stability at the level of geographic regions and countries. The study uses the methods of a structured system, comparative and cluster analysis. The empirical study is based on World Bank data for 126 countries for the period 1998–2017. One of the key results of the study is the development of quantitative indicators of the financial stability of the world banking system. These indicators differ from the existing ones due to the predictive nature of the former. The study also proposes criteria of qualitative assessment of the level of financial stability of the world banking system and its individual elements in the form of regional and national banking systems. In addition, appropriate algorithms were developed to calculate the proposed indicators and criteria. The results helped to form clusters of countries in terms of the level of their banking system stability, compile maps of financial stability risks at the global level, and identify countries that are sources of potential threats to financial stability. The empirical part of the study confirms the practical applicability of the proposed analytical tools. The study shows that in 2017, the banking system of Asian countries moved to the high-risk zone. Potential threats to the financial stability of the global banking system come from the European and Asian banking systems, as well as from the Australian banking system. AcknowledgmentThe study was funded by the RFBR according to the research project No 18 010 00232 “A methodology of multilevel system of diagnostics and regulation of financial stability” year 2018–2020.

The Interrelationship Among Efficiency and Concentration of Banking System and its Stability: Evidence from Poland

“…Such factors include those both relating to the security of individual banks' operations (such as capital resources, operating efficiency, credit policy, financial leverage, liquidity) and determinants of the functioning of the whole banking system, e.g., banking regulations (Atellu, Muriu, and Sule, 2021), the economic development level of the country concerned, the development level of the financial market (Shkolnyk, Kozmenko, Polach, and Wolanin, 2020), the monetary policy pursued (Nelson, 2018). Furthermore, one can note that the catalogue of factors shaping the stability of the banking system continues to expand, which results from the rapid growth of the technological world (as it contributes to developing new banking services, new forms of contact with customers) and from the globalisation of the world economy (all trends observed in one country's market spread fast worldwide) (Gospodarchuk and Amosova, 2020). New threats and risks emerge, previously unknown.…”

“…New trends in investigations into the stability of the banking system include global risk assessment (Gospodarchuk and Amosova, 2020). Some researchers see that the stability of a country's banking system is determined not only by microand macroeconomic conditions, but also by global factors, including global economic crises.…”

Financial stability: problems of inter-level and cross-sectoral equilibrium

“…Currently, the following risk-based concepts for diagnosing financial sustainability are applied more commonly: − the concept of structural changes that assesses financial stability on the basis of changes in the volume of borrowings and risk assets (Bhattacharya et al, 2015); − the concept of default that assesses financial stability on the basis of a combination of profitability and probability of default (Aspachs et al, 2007); − the concept of regulatory and economic capital that evaluates financial stability based on the ratio of regulatory (economic) capital and magnitude of the risks (Basel Committee on Banking Supervision, 2004); − the concept of leverage, which assesses financial stability on the basis of the ratio of borrowed funds and equity funds (King, 2010); − the concept of debt limitation that assesses financial stability on the basis of the ratio of debt to income (Trichet, 2011). − the concept of effective risk evaluating financial stability based on the ratio of profitability and risk (Gospodarchuk & Gospodarchuk, 2017a).…”

“…As a second indicator, we used the profitability/risk ratio (PR), which described in Gospodarchuk and Gospodarchuk (2017a). This indicator is calculated based on the financial statements of banks.…”

“…The calculation of the PR indicator was also performed for the period 2014-2017 using the methodology given in Gospodarchuk and Gospodarchuk (2017a). To calculate the PR, we used indicators of earnings before tax and the magnitude of risks found from the formula for calculating the ratio of bank capital adequacy ratio with subsequent aggregation of individual indices.…”