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Fiscal sustainability and financial stability

In: CNB Financial Stability Report 2012/2013

Author

Listed:
  • Zlatuse Komarkova
  • Vilma Dingova
  • Lubos Komarek

Abstract

As the two-way interaction between the financial sector and the government sector grows, so does the dependence between financial stability and fiscal stability. The high creditworthiness of government debt represents both a significant source of certainty for the financial system and a solid basis for the pricing of assets through the supply of "risk-free" government bonds. Given the risk of a downward spiral developing between the two sectors, it is vital, in the interests of financial stability, to monitor fiscal stability in order to put a timely regulatory "block" on excessive interaction. This article illustrates that when assessing sovereign risk in the balance sheets of domestic financial institutions, one needs to consider the dependence of debt sustainability not only on the size of the debt in relation to GDP, but also on the macroeconomic conditions affecting interest rates and economic growth. The article then discusses current and newly proposed prudential policy tools suitable for reducing sovereign risk in financial institutions'balance sheets.

Suggested Citation

  • Zlatuse Komarkova & Vilma Dingova & Lubos Komarek, 2013. "Fiscal sustainability and financial stability," Occasional Publications - Chapters in Edited Volumes, in: CNB Financial Stability Report 2012/2013, chapter 0, pages 103-112, Czech National Bank, Research and Statistics Department.
    • Handle: RePEc:cnb:ocpubc:fsr1213/2
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    References listed on IDEAS

    as
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    2. Bashir Olayinka Kolawole, 2021. "Fiscal Stability and Macroeconomic Environment in Nigeria: A Further Assessment," Theory Methodology Practice (TMP), Faculty of Economics, University of Miskolc, vol. 17(02), pages 53-66.

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