European Parliament Library

Financial Soundness Indicators and the Characteristics of Financial Cycles, Natasha Che, Yoko Shinagawa

Better “financial soundness” of banks could help mitigate the volatility of financial cycles by reducing banks’ risk exposure. But trying to improve financial soundness in the midst of a downturn can do the opposite—further aggravating the contraction of credit. Consistent with this notion, the paper found that better initial scores in certain financial soundness indicators (FSIs) are associated with milder and shorter downturns; and improving FSIs during a downturn worsens the shrinkage of credit and amplifies the cycle. In this context, our results suggest that policy makers should be mindful about the timing of regulating changes in banks’ FSIs
Table Of Contents
Cover; Contents; I. Introduction; II. Data; A. Data on FSIs; Figures; 1. Development of FSIs for Selected European Countries, 2005-2011; B. Calculating Financial Cycles; III. SRF-FSIs and Credit Growth; 2. Impulse Responses of Credit Growth to Shocks in Growth in Capital-asset Ratio, Liquid-asset Ratio, and Net Open Position-capital Ratio; IV. SRF-FSIs and the Characteristics of Financial Cycles; 3. Amplitude, Duration, and Slope of a Downturn; V. Conclusion; Tables; 1. Summary Statistics of SRF-FSIs; 2. Regression of SRF-FSIs on IMF-FSIs (with country fixed effects)
Literary Form
non fiction
Description based upon print version of record
Physical Description
1 online resource (27 p.)
Specific Material Designation
Form Of Item

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