Dynamic Impact of Banking Performance on Financial Stability: Fresh Evidence from Southeastern Europe

Veton Zeqiraj,Flamur Mrasori,Kazi Sohag,Omer Iskenderoglu

doi:10.2478/jcbtp-2021-0008

Abstract

Abstract This study addresses the issue of whether banking performance impacts financial stability in Southeastern European countries. To answer this question, the GMM approach has been applied in the analyses of the panel data over the period 2000–2015 for Southeastern Europe. The findings reveal the presence of significant positive long-run relationship between ROA, ROE, trade openness, and human capital, while government expenditures have negative impact on financial stability. Trade openness, human capital and government expenditures can keep the financial system stable as a whole. The Granger causality analysis discloses the main hypothesis where the banking system in this part of Europe accounts for more than 80% of the financial system. The study sheds light to the policymakers and research about the role of banking performance on financial stability for this region of Europe.

Highlights

IntroductionThere is a debate in the literature for financial stability and banking performance regarding their role in the economy
There is a debate in the literature for financial stability and banking performance regarding their role in the economy.An increased role in the face of banking performance promotes financial stability, lowers the lack of confidence in the banking system, and promotes economic growth as a whole
This paper empirically examined the dynamic impact of financial stability on the banking performance in Southeastern European countries during 2000-2015

Summary

Introduction

There is a debate in the literature for financial stability and banking performance regarding their role in the economy. An increased role in the face of banking performance promotes financial stability, lowers the lack of confidence in the banking system, and promotes economic growth as a whole. The role of financial stability and banking performance is one of the most widely discussed issues in economic literature. The role of the financial system is the most important in terms of the banking system in this part of Europe as it accounts for more than 80%. Much of research considers it the main catalyst impact of financial stability. Financial stability remains an important segment of the overall financial sector performance in the global economy, and is mostly discussed in line with the level of financial instability. Financial stability remains an important segment of the overall financial sector performance in the global economy, and is mostly discussed in line with the level of financial instability. Zingales (2015) argued that in the economy with low level of incomes, more finance in the financial system has a better economic impact

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