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Strengthening Financial Stability Indicators in the Midst of Rapid Financial Innovation: Updates and Assessments

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  • Yuthika Indraratna
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    Abstract

    In response to the global financial crises in the 1980s and 1990s, national and international institutions started to monitor the soundness of the financial system more intensively. A wide range of instruments/indicators is used to assess financial system stability in analytical practice. These include in particular, analysis of quantitative indicators of financial system soundness and stability, including stress testing. These indicators strive to cover the issue of financial stability as a systemic phenomenon and therefore concern, not only financial institutions and markets, but also the real and government sectors as the main debtors of financial institutions, as well as the financial infrastructure. The inclusion of non-banking sector indicators in the financial stability indicators (FSIs) reflects the interconnectivity of the financial and real sectors, such as for example, unfavourable developments in the corporate sector pass-through to the loan portfolio of banks, thus having possibly a negative effect on financial stability.The objective of this study is to assess and review the array of financial stability indicators employed by the SEACEN member central banks as well as the strength and the shortcomings of the available tools, especially in the context of the recent global financial crisis. It also assessed the comparability and consistency of the FSI indicators across the SEACEN economies as well as globally since the objective of a set of financial stability indicators is to provide users with a general idea of the soundness of the financial sector as a whole. Lastly, the study also examined the recent efforts undertaken to further enhance these indicators both globally and also at the SEACEN member central banks, especially in the wake of the recent global financial crisis.

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    This book is provided by South East Asian Central Banks (SEACEN) Research and Training Centre in its series Research Studies with number rp89 and published in 2013.

    ISBN: 978-983-9478-15-0
    Handle: RePEc:sea:rstudy:rp89

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    1. Lawrence J. Christiano & Martin Eichenbaum & Robert Vigfusson, 2006. "Assessing Structural VARs," NBER Working Papers 12353, National Bureau of Economic Research, Inc.
      • Lawrence J. Christiano & Martin Eichenbaum & Robert Vigfusson, 2007. "Assessing Structural VARs," NBER Chapters, in: NBER Macroeconomics Annual 2006, Volume 21, pages 1-106 National Bureau of Economic Research, Inc.
    2. Claudio E. V. Borio, 2006. "Monetary and prudential policies at a crossroads? New challenges in the new century," BIS Working Papers 216, Bank for International Settlements.
    3. Gary Gorton, 1986. "Banking panics and business cycles," Working Papers 86-9, Federal Reserve Bank of Philadelphia.
    4. William Poole, 1970. "Optimal choice of monetary policy instruments in a simple stochastic macro model," Staff Studies 57, Board of Governors of the Federal Reserve System (U.S.).
    5. Marco Sorge, 2004. "Stress-testing financial systems: an overview of current methodologies," BIS Working Papers 165, Bank for International Settlements.
    6. Mathias Drehmann & Nikola Tarashev, 2011. "Systemic importance: some simple indicators," BIS Quarterly Review, Bank for International Settlements, March.
    7. Jim Wilkinson & Kenneth Spong & Jon Christensson, 2010. "Financial stability reports: how useful during a financial crisis?," Economic Review, Federal Reserve Bank of Kansas City, issue Q I, pages 41-70.
    8. Sònia Muñoz & Samir Jahjah & Martin Cihák & Sharika Teh Sharifuddin & Kalin Tintchev, 2012. "Financial Stability Reports:What Are they Good for?," IMF Working Papers 12/1, International Monetary Fund.
    9. Janet L. Yellen, 2009. "A Minsky meltdown: lessons for central bankers," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue may1.
    10. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August.
    11. Mathias Drehmann & Claudio Borio & Leonardo Gambacorta & Gabriel Jiminez & Carlos Trucharte, 2010. "Countercyclical capital buffers: exploring options," BIS Working Papers 317, Bank for International Settlements.
    12. Janet L. Yellen, 2009. "A Minsky meltdown: lessons for central bankers," Speech 70, Federal Reserve Bank of San Francisco.
    13. Trichet, J.C., 2011. "Intellectual challenges to financial stability analysis in the era of macroprudential oversight," Financial Stability Review, Banque de France, issue 15, pages 139-149, February.
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