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Stability of the euro area banking sector since the SSM implementation: deriving ABSI with ESG component included

Author

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  • Emilija Popovska

    (School of Economics and Business, University of Ljubljana (SEB LU))

  • Marko Košak

    (School of Economics and Business, University of Ljubljana (SEB LU))

Abstract

This study aims to evaluate the stability of the euro area banking sector since the implementation of the Single Supervisory Mechanism (hereinafter: SSM). For that purpose, aggregate bank stability index (hereinafter: ABSI) was constructed on a yearly basis, covering the period since 2014—the year when the SSM was implemented, until 2023. The index was constructed as a weighted sum of the stability indices of significant and less significant banks and the index composed of environmental, social and governance (hereinafter: ESG) factors. Findings suggest that stability of the euro area banking sector improved since the SSM implementation. While no statistically significant differences in stability between significant and less significant banks were found, empirical evidence indicates that significant banks have been improving their stability at a quicker pace since the implementation of the SSM. Nevertheless, the outcomes vary across different countries. Moreover, statistically significant effect of the ESG component on bank stability was identified.

Suggested Citation

  • Emilija Popovska & Marko Košak, 2025. "Stability of the euro area banking sector since the SSM implementation: deriving ABSI with ESG component included," Journal of Banking Regulation, Palgrave Macmillan, vol. 26(3), pages 474-502, September.
    • Handle: RePEc:pal:jbkreg:v:26:y:2025:i:3:d:10.1057_s41261-024-00265-8
    DOI: 10.1057/s41261-024-00265-8
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    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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