Factors of financial stability of Ukrainian banks: impact and trends

PurposeBank competition and financial stability are often cited as important drivers of economic growth. Bank competition plays a very significant role in enhancing the efficiency and determining the stability of a financial system. However, a question of interest is whether bank competition enhances or hindrances the economic growth of a country. The purpose of this paper is to investigate the role of bank competition and financial stability on economic growth for selected South Asian economies over the period 1997–2016.Design/methodology/approachTo investigate whether bank competition enhances or hinders economic growth, the author applies a two-step estimation technique. First, the author estimates bank competition using the Lerner index and adjusted Lerner index and, second, examines the joint effect of bank competition and financial stability on economic growth applying both panel regression model and system GMM techniques.FindingsEmpirical findings reveal that the banking sector in South Asian economies is competitive as indicated by the estimated values of Lerner and adjusted Lerner index. Moreover, the joint effect defined by the interaction between banking competition and banking stability also reveals a positive and significant impact on economic growth. This finding implies that both banking competition and banking stability are significant long-term determinants of economic growth in South Asian economies.Practical implicationsThis paper suggests flexible banking regulation policies such as low net interest rate margins, lesser activity restrictions and entry of foreign banks along with few contestability measures to increase bank competition in South Asian countries. This is because as higher the competition, greater is the chance for efficient allocation of resources and hence economic growth.Originality/valueThis paper is the first of its kind that considers the joint role of bank competition and financial stability on economic growth. The application of a semi-parametric approach in the estimation of marginal cost is also a unique contribution to empirical literature.

The article is devoted to the problem of ensuring the financial stability of commercial banks as a key factor in the stability of the banking system and the economy as a whole. In this context, it is substantiated that in conditions of growing uncertainty and risks associated with global economic crises, stress testing becomes an important tool for assessing the ability of banks to withstand adverse conditions. An analysis of key aspects of methodological support for stress testing was carried out, including the development of scenarios, assessment of the impact of stress scenarios on the bank’s financial indicators, analysis of results and development of measures to improve financial stability. On this basis, a description of key aspects of ensuring the stress testing of the financial stability of a commercial bank is provided, their positive and negative features are highlighted. A scheme of methodological support for stress testing of the financial stability of a commercial bank is built, which includes such elements as: phased implementation of methodological techniques, tools and evaluation criteria for implementation. The criteria for assessing the methodological support for stress testing of the financial stability of a commercial bank are disclosed, which allow: to determine whether the capital reserve is sufficient to cover possible losses in the event of adverse scenarios; to assess the bank’s ability to timely fulfill its financial obligations under stress scenarios, and to determine whether the scenarios also indicate compliance with regulatory requirements, the timeliness of threat identification and the level of risk management effectiveness. It is substantiated that the formation of methodological support for stress testing of the financial stability of a commercial bank is an effective tool for ensuring the stability of the banking system and increasing the financial stability of banks. It provides a comprehensive approach to assessing the bank’s ability to withstand adverse conditions and developing measures to minimize risks.

Introduction. In the context of increasing global financial uncertainties, ensuring the financial stability of banks becomes crucial for the economic security of Ukraine. The stability of the banking system has a direct impact on the country's investment attractiveness, the stability of the national currency, and the trust of investors and citizens in financial institutions. In this context, the analysis of factors that affect the financial stability of banks is relevant, since understanding these factors allows for the formation of strategies to minimize risks and increase the overall stability of the financial system. This article draws attention to the interrelationships between macroeconomic and microeconomic processes in the context of their impact on banking stability, with a particular focus on the challenges faced by banks in Ukraine. The purpose of the article. The purpose of the study is to identify and analyze external and internal factors that affect the stability of the banking system, and to develop recommendations for managing these factors to improve financial stability. Research methods. The methods of system analysis, classification, and comparative analysis were used for the analysis. The use of these methods allows for a comprehensive assessment of the impact of various economic and organizational factors. The results. The study determined the importance of both external and internal factors in shaping the financial stability of banks. Among the key external factors, the impact of global economic trends, changes in legislation, exchange rate fluctuations and the economic policy of the state was revealed. Internal factors include management strategies, the quality of the bank's assets, the level of corporate governance and innovative activities. Special attention is paid to the analysis of the impact of the bank's internal processes on its ability to adapt to economic fluctuations. As a result of the study, recommendations were formulated for improving risk management systems, in particular through the implementation of advanced IT solutions for risk monitoring and analysis. It is also emphasized the need to increase the transparency of banks' activities and increase the financial literacy of clients as factors for strengthening trust in financial institutions.

This paper examines the casual relationship between bank competition and financial stability in Nepal. The relationship between competition and financial stability in banking system can be explain by two hypothesis: The "competition-fragility" theory holds that increased bank competition weakens profit margins, undermines market power, and lowers franchise value—the continuing concern or market worth of the banks above their book values and “competition-stability” view contends that financial institution stability may benefit from competition. The study used descriptive and causal research design. The random effect panel data of 6 commercial banks of Nepal over the period of 2014-2019. All the data are obtained from NRB monthly statistic and bank annual report. The HHI and n-bank concertration ratio are used as a measure of bank competition while Z-Index and non-performing loan ratio are the proxies of financial stability. The findings confirm the"Competition-frangility" theory by showing a negative association between bank competition and financial stability in Nepal. It states that bank tends to take excessive risks when the competition level increases. It is discovered that competition in the banking industry raises credit risk and reduces capital levels. Riskier policies enhance the likelihood of increased bank bankruptcies and non-performing loan ratios, which adds to fragility and financial instability. Thus, less concentrated banking systems are prone to experiences crisis.

The decline in financial system stability has negative consequences for the economy as a whole, such as declining economic growth, increasing political and social instability, increasing poverty rates, and so on. Therefore, research is needed to determine the appropriate policies to improve the stability of the Indonesian financial system. This study aims to examine the influence of fintech and monetary policy on the stability of the Indonesian financial system from 1982-2019. The method used is Vector Autoregression (VAR). The results of this study conclude that shocks that occur in gross domestic product (GDP), inflation (INF), exchange rates (KURS) and service features (FL) have a positive and significant impact on the stability of the Indonesian financial system. Meanwhile, shocks that occur in the amount of money in circulation (JUB), real interest rates (SBR), ease of use (KP) and information security risk (RKI) have a negative and significant impact on the stability of the Indonesian financial system.

The soundness of banks' finances serves as the foundation for the entire financial sector because they are essential to promoting economic growth. A commercial bank's financial stability should be assessed with specific emphasis given to domestic and foreign issues that affect how the bank operates and figuring out the amount of their influence on the status and operations of the commercial bank. Nevertheless, the impact of the company's capital, liquidity, and asset quality on the financial stability of commercial banks has not been studied. This study aimed to evaluate the effect of capital level on licensed commercial banks’ financial stability in Kenya. The research was anchored by capital buffer theory. The explanatory research design was adopted to analyze thirty-nine banks for the period 2016 to 2022 based on the census approach. The study outcomes were arrived at using secondary data obtained under the guidance of the secondary data collection schedule. The assessment of the investigation was evaluated premised on descriptive and panel approaches. The findings indicated that capital level had a positive and significant effect on the financial stability of commercial banks. The study recommended that commercial banks should adopt strategies and measures that will enable them to increase the capital level leading to an increase in financial health.

The soundness of banks' finances serves as the foundation for the entire financial sector because they are essential to promoting economic growth. A commercial bank's financial stability should be assessed with specific emphasis given to domestic and foreign issues that affect how the bank operates and figuring out the amount of their influence on the status and operations of the commercial bank. Nevertheless, the impact of the company's capital, liquidity, and asset quality on the financial stability of commercial banks has not been studied. This study aimed to evaluate the effect of capital level on licensed commercial banks’ financial stability in Kenya. The research was anchored by capital buffer theory. The explanatory research design was adopted to analyze thirty-nine banks for the period 2016 to 2022 based on the census approach. The study outcomes were arrived at using secondary data obtained under the guidance of the secondary data collection schedule. The assessment of the investigation was evaluated premised on descriptive and panel approaches. The findings indicated that capital level had a positive and significant effect on the financial stability of commercial banks. The study recommended that commercial banks should adopt strategies and measures that will enable them to increase the capital level leading to an increase in financial health.

PurposeThis paper aims to empirically assess the contribution of Islamic banks toward the financial stability of Pakistan. For this, the authors investigate the relative financial strength of Islamic banks and their contribution toward the financial stability. They also examine the relationship between the competitive conduct of banks and banking system stability.Design/methodology/approachThe authors use quarterly data of ten conventional banks, four full-fledged Islamic banks and six standalone Islamic branches of conventional banks of Pakistan for the period 2006-2012. The z-score has been computed and used as the measure of stability of banks and the random effects estimator applied to quantify the impact of bank-specific variables and macroeconomic indicators on the financial stability. The empirical framework used in the paper enables the authors us to examine the differential effect of each underlying variable on the financial stability across Islamic and conventional banks. To check the robustness of the results, the authors have estimated several models with different specifications.FindingsThe regression results indicate that income diversity, profitability ratio, loan to asset ratio, asset size and the market concentration ratio of banks have significant effects on the stability of banks. Comparing Islamic and conventional banks, notable differential effects of the empirical determinants of financial stability for Islamic and conventional banks have been observed. The results suggest that Islamic banks have performed better as compared to conventional banks and contributed more effectively in the stability of financial sector. Overall, the results depict that the contribution of Islamic banks toward the financial stability has been reasonable and prospective.Practical implicationsThe empirical results of the paper are very useful not only for banks’ managements but also for the investors, bank customers and policymakers. Specifically, the findings help in enhancing our understanding as to how the bank-specific variables and macroeconomic indicators are related to the financial stability of the banking system. The results also help understand the role of both Islamic and conventional banks in the financial stability. Further, the results suggest that the financial soundness can be enhanced by creating healthy competition in the banking industry. The results about macroeconomic indicators imply that protective measures are required to intensify (mitigate) the positive (negative) effect of gross domestic product (inflation) on banks’ financial stability.Originality/valueThis paper provides an overall comparative analysis of financial stability of both Islamic and conventional banks of Pakistan. First, the paper computes the z-score for each bank included in the sample, and then, it performs the regression analysis to study how bank-specific variables and macroeconomic factors are related to the financial stability of banks. Unlike the previous studies, our empirical framework enables the authors to examine the differential effect of each underlying variable on the financial stability across Islamic and conventional banks.

A stable banking sector is significant in ensuring economic growth as well as sound, efficient and stable financial system. However, the banking sector in Kenya has been considered fragile and this is evident from the increasing trend of non-performing loans, fluctuating deposit trend of some commercial banks and fluctuations of foreign liabilities in commercial banks in Kenya, which is associated with financial stability. Furthermore the collapsing of some commercial banks and some being put under receivership is of great concern to the financial stability of the commercial banks in Kenya. The general objective of the study was to establish the effect of CAMEL variables on financial stability of commercial banks in Kenya. The specific objectives of the study were to determine the effect of operational efficiency, capital adequacy, bank liquidity, profitability and asset quality on financial stability of commercial banks in Kenya. The study was carried out in 17 fragile commercial banks in Kenya between 2011 and 2018. Generalized Method of Moments (GMM) model guided by dynamic panel regression results revealed that operating efficiency had a statistically significant positive effect on financial stability (β= 0.3104109, p=0.037) of commercial banks in Kenya. The study also established that capital adequacy had a statistically significant negative effect on financial stability (β= -0.1560403, p=0.050) of commercial banks in Kenya. The study further revealed that bank liquidity had a statistically insignificant negative effect on financial stability (β= -0.0073553, p=0.881) of commercial bank in Kenya. In addition, profitability had a statistically significant negative effect on financial stability (β= -0.1064231, p= 0.036). Finally, the study revealed that asset quality had a statistically significant positive effect on financial stability (β= 0.0987029, p= 0.032). Based on these findings, the study recommends for mergers and acquisition among the fragile commercial banks as per the fragility index, adoption of internal economics of scale, limits on insider loans to be established and credit to borrowers should not exceed 15% of the capital. This would ensure a sound and vibrant economy towards achieving the Vision 2030 that advocates for well-functioning, efficient and stable financial system. Keywords : Camel Variables, Firm characteristics, Financial Stability, Dynamic Panel Regression. DOI: 10.7176/RJFA/11-18-10 Publication date: September 30 th 2020

This paper is devoted to defining the role of the central bank in ensuring banking and financial stability. The main purpose of the study is to assess the direction and strength of the impact of central bank independence in terms of its individual aspects on the parameters of banking and financial stability for different groups of countries. Systematization of literature sources and the results of existing empirical research has shown that the expected effects of increasing the independence of the central bank are to improve banking and financial stability. For the study, a sample of statistical data for 10 developed and 10 developing countries for the period 1991-2012 was formed. The methodological basis of the study were the tools of panel regression modeling with fixed effects with Stata software use. The article presents the results of empirical analysis, which showed that the independence of the central bank is an important factor in ensuring banking stability. At the same time, the impact on financial stability has not been conclusively confirmed. The study empirically confirms and theoretically proves that the stage of development of the country determines the strength of such influence. Thus, developed countries generally show closer links between central bank independence and banking and financial stability, which in most cases are directly dependent, while developing countries have less lasting effects. The results of the analysis of the links between certain aspects of central bank independence and the level of banking and financial stability are of great practical value. The results of the study create a scientific basis for substantiating the sequence of actions aimed at strengthening the independence of the central bank. Thus, in developing countries, the focus should be on defining and prioritizing central bank goals, while developed countries should take a deeper approach to this issue and ensure the independence of monetary policy and financial independence of the central bank. Keywords: central bank, independence, banking stability, financial stability, Z-score, non-performing loans, capitalization, developed countries, developing countries, panel data.

Purpose. The aim of the article is to analyse of the financial stability of the banking system as a key indicator of the economic security of the state, which allows assessing the activities of the NBU to ensure the effectiveness of the economic security system. Methodology of research. The following research methods were used to achieve the goal: systemic economic analysis, which was used to assess the main indicators of the efficiency of the financial sector of the country's economy according to NBU data; data grouping method, used to assess the efficiency of the banking system; stress testing of the banking system was used when conducting scenario analyses to assess the impact of various shocks on financial stability. The study also used systemic and graphical methods to organize the initial data and final conclusions, as well as the generalization method to form the main results. Findings. The key tasks of the NBU to improve the efficiency of the financial sector in order to strengthen economic security were considered. It was established that their implementation will not only strengthen financial stability, but also create the necessary prerequisites for sustainable economic development and long-term economic security of the country. The dynamics of loans provided by deposit-taking corporations to non-financial corporations by currency, as well as the quality of the loan portfolio of Ukrainian banks (share of non-performing loans, NPL) for the period 2019 - 01.12.2024 were analysed, which allowed us to identify the main trends in the structure and stability of the banking sector. Changes in lending, the impact of the currency factor on the financial stability of borrowers, as well as the dynamics of the share of problem assets, which is an important indicator of the financial stability of the banking system and its ability to support economic development, were assessed. It is established that the banking system of Ukraine maintains a high level of liquidity, which contributes to financial stability and economic security of the state; high liquidity indicators allow banks to fulfil their obligations in a timely manner, reduce the risks of banking crises and maintain confidence in the financial system. It is substantiated that the use of modern approaches, such as stress testing or scenario analysis, makes it possible to assess the impact of possible shocks on the financial condition of banking institutions, to timely adapt the banking strategy to market conditions. It is proven that regular assessment of financial indicators of banking institutions is an important tool for ensuring the stability of the bank and protecting it from potential threats. Originality. The substantiation of integrating the financial stability of the banking system as a key indicator of the economic security of the state has been further developed, in particular through improving monitoring and risk management mechanisms, as well as developing new strategic initiatives of the NBU to strengthen the banking system in the face of modern challenges. Practical value. The results of the conducted research provide a deep understanding of the mechanisms for ensuring the financial stability of the banking system and its impact on the economic security of the state. In particular, the results allow improving the NBU's policy on banking stability, improving the quality of bank assets through stress tests and assessing the stability of banks. Reducing the share of non-performing loans, improving bank capitalization and implementing restructuring strategies will reduce systemic risks, increase confidence in financial institutions and ensure the stability of the banking system in conditions of economic instability. Key words: financial stability, economic security, banking system, National Bank of Ukraine, banking institutions, share of non-performing loans, liquidity, bank capital.

To analyse the relevance of CBCA in those countries where another country’s currency is legal tender we have to discuss which factors affect central bank capital, and we have to investigate whether there is an optimal level of capital for central banks. In answering those questions, one needs to highlight the main differences between central banks in charge of monetary and exchange rate policy, and central banks without these responsibilities. In the literature, capital needs have been mainly coupled with the existence of the domestic currency and the conduct of monetary policy and exchange rate control. However, the reasons for holding capital are wider. Some are common to private companies, while others pertain to central banks alone. First, there are reasons for holding capital that apply to any central bank. As in the private sector, capital has to cover potential losses. But for a central bank, some potential losses can be incurred as a consequence of the central bank’s institutional mandate. The typical mandate for a central bank comprises conducting the monetary and foreign exchange policy, maintaining a secure payment system and a stable banking sector. So, losses can be incurred in many ways. They could be a consequence of the day-to-day management of the currency reserves,3 or brought about by sterilization operations, or follow from emergency liquidity assistance when the central bank has to grant concessional credit to rescue ailing institutions. These contingent liabilities tend both to reduce the transparency of central bank accounts and to make the assessment of a central bank’s financial position more difficult (Blejer and Schumacher 1998). Despite these potential losses deriving from a central bank’s institutional mandate, central banks may be profitable institutions, in view of their monopoly power. Central banks can enjoy seigniorage arising both from the issue of the currency and from banks’ funds held at low or zero interest with the central bank. In the long run a central bank’s profitability should be secure as long as the demand for banknotes is maintained, the central bank keeps monopoly power over money issuing and the rate of inflation is not too low. There is a link between price stability and financial autonomy. Low inflation ensures adequate demand for money, and demand for money ensures seigniorage (at a given nominal interest rate, at least) and hence financial independence. That, in turn, is key for autonomy and reputation – necessary conditions to achieve price stability. However, lower inflation eventually goes hand in hand with lower nominal interest rates, and seigniorage may be defined as the product of the nominal interest rate and the monetary base. So, lower inflation is likely to reduce seigniorage at least at some point, as was noted in the introduction to this chapter. Second, like a private bank, a new central bank needs capital to fund its start-up costs. Third, capital has also to generate continuing operating income to secure the long-term financing of operating costs. Adequate capitalization matters to ensure income to cover future costs. Finally, the amount of capital signals to stakeholders how well the institution is being managed (though this signal scrambled because central banks may incur losses for legitimate policy reasons). In any case, if the public infers from negative capital that the centralbank is poorly run, it may erode the bank’s general reputation4 (Vaez-Zadeh 1991). Moreover, approaching the government frequently would compromise the actual and perceived autonomy of the central bank. In sum, central bank autonomy can easily be eroded, unless supported by adequate financial strength. The above-mentioned factors govern central banks’ demand for capital. But they differ when the country has no domestic currency of its own. Table 6.1 highlights the main determinants of central bank capital in the two cases. In the second case, identifying potential liabilities and risks facing a central bank is much simpler. But even then one must define the central bank’s relevant overall assets or resources and its potential liabilities in the future.5 Here, the central bank’s demand for capital will vary with: (i) the level and type of risks faced, (ii) past, present and future profitability and (iii) financial arrangements regulating the relationship between the central bank and the government (profit-sharing rules, obligations of the national treasury in case of need, fiscal treatment). The central bank’s risks depend on the number of its functions, the level of development of the financial sector and the prospects for adverse events affecting its financial stability, the exchange rate regime and the level of inflation. Consequently, as far as risk assessment is concerned, we should expect that potential risks should be lower for central banks without a domestic currency given that there is no contingency for monetary and exchange rate policies and banking sector crises. Some situations where a central bank might need to deploy its resources do not apply. Such situations include requests for support to defend the exchange rate, or interventions through sterilization operations to keep the monetary aggregates under control or to inject new liquidity to rescue ailing banks. On the other hand, in order to perform its refinancing function in case of a banking crisis, we would expect a central bank without a domestic currency to hold more capital, provided that it cannot create additional liquidity by issuing a new monetary base. Since the central bank could not create additional liquidity, commercial banks would require more capital, as they lacked access to a lenderof last resort facility. However, even without its own monetary and exchange rate policies, a central bank might risk financial losses on initiatives and policy actions warranted on public interest grounds. Such initiatives include rescuing ailing institutions, safeguarding the payment system, and setting up a credit register. They might be reluctant to act without adequate financial resources to absorb such additional expenses. There are also differences in profitability and financial arrangements. In the absence of a domestic currency, the central bank has no seigniorage to exploit. Without seigniorage the central bank has to rely on government funding, returns from its own capital and any commissions or fees from regulated sectors. There is a much greater role for capital to serve as a means for generating operating income, and a greater need for adequate financial arrangements to protect it. How much equity does a central bank need? For central banks without a domestic currency, and no seigniorage income, a simple rule might calculate the amount of capital by considering the goal of covering operating costs – assuming a particular (real) rate of return. But potential losses arising from carrying out its mandate also needs to be allowed for. The more numerous the central bank’s areas of responsibility, the larger its capital needs. For instance, central banks that manage foreign exchange reserves should have higher levels of capital, as should those that run their own monetary policy. The size of the country may matter. In very small countries it is common to find simple institutional arrangements with only one monetary and financial authority, presumably widening the central bank’s responsibilities. If there are fixed costs and scale economies in operating a fully fledged central bank or financial regulator, a small country’s central bank would need proportionately more capital. For small countries this argues in favour of simpler institutional arrangements for their monetary and exchange rate regimes. It might justify sharing the burden of sustaining the central bank’s finances with others bodies (government; financial intermediaries), with implications for transparency and accountability. What institutional arrangements should define the relation between the government and the central bank? The level of central bank capital is only one aspect of the relationship between them. The nature and extent of a central bank’s financial autonomy is shaped by its relation with the government, and how that is reflected in the structure of arrangements for financing central bank activities, for sharing risks and distributing its profits and losses. There might be direct transfers from the treasury to the central bank, reducing the need for central bank capital. But pre-agreed mechanisms and rules would have to protect central bank financial autonomy. Risk treatment and risk bearing could also be affected. Risky balance sheet items or contingent liabilities could be held by the government, with the government taking over some quasi-fiscal activities from the central bank. The government could take responsibility for providing financial support to banks in difficulties. And if the central bank generates revenues, rules governing its profit distributions would be required. In practice, Ueda (2004) shows that there is a high variance in the levels of capital held by central banks around the world. He presents the ratio of capital tototal assets for a number of central banks.6 This ratio varies widely from country to country. The variance reflects differing motivations ascribed to central bank activities, different kinds and received levels of risks, and different profit and sharing rules with national governments.7 It could also suggest a lack of consensus among central banks about the desirable level of capital.

The aim of the article is to theoretically substantiate the essence and characteristics of the financial stability of banks at macro and micro levels. From a theoretical perspective, it is proved that financial stability is declared as a priority direction of macroprudential policy for first-level banks – central banks – and as a dynamic characteristic of the functioning of second-level banking institutions. The generalization of existing theoretical approaches to understanding the essence of financial stability has allowed to allocate those that emphasize the manifestations of crisis phenomena, systemic risks, and signs of instability. It is specified that the prudential policy of the NBU focuses on financial stability and is based on the ability of the financial system to perform intermediation functions, prevent systemic risks, and potential and real crises. It is proposed to differentiate between the definitions of «financial stability of the banking system» and «financial stability of banks», and to outline the hierarchy and interdependence of these concepts. The financial stability of the banking system is a complex, dynamic characteristic of its condition, reflecting its capacity to resist real and potential crisis phenomena and threats, effectively perform accumulation, distribution, and redistribution functions, execute payments and settlements, positively affect transformational processes in the economy, counter systemic risks, and return to a state of equilibrium. The financial stability of a bank is its long-term ability to conduct traditional and innovative banking operations, mediate payments, fulfill its obligations, and generate a positive financial outcome while assessing risks from both the exogenous and endogenous environment. A conceptual scheme of the hierarchy of financial stability concepts of banks at macro and micro levels has been elaborated. It is clarified that financial stability manifests itself as a dynamic state of the stable development of financial institutions, financial markets, and financial infrastructure. The stability of financial institutions largely depends on the resilience of the banking and para-banking sectors. In turn, the stability of the banking system reflects the effectiveness of the activities of the National Bank of Ukraine and commercial banks. The financial resilience of commercial banks is the foundation for their stability, which in turn significantly determines the overall stability of the banking system. Further research should focus on the methodological tools for assessing financial stability at macro and micro levels using quantitative and qualitative indicators.

Price and Financial Stability in Modern Central Banking José De Gregorio (bio) Although the first central banks were created more than three hundred years ago, it was not until the mid-nineteenth century that central banks were given the monopoly power to issue banknotes and to act as lender of last resort. Thereafter, central banks played the role of liquidity provider and lender of last resort. These tasks were intended to allow a proper functioning of the payment system, so financial stability was implicitly a major concern for central banks. Over time, central banks moved toward achieving price stability, from monetary stability to controlling inflation. Financial stability became a secondary goal, if a goal at all. This has not been the case in emerging market economies, which have been affected by recurrent financial crises. Indeed, financial crises like those of Chile in the early 1980s or in Mexico and Asian countries in the 1990s are not radically different from the recent crisis in advanced economies. The complexity may have changed, but the original causes had many similarities.1 Some years ago it was much more frequent to find central bankers concerned about financial stability in emerging countries than in advanced ones. However, as a consequence of the global financial crisis, the issue of financial stability has reemerged as a top priority for policymakers. In this paper, I discuss the issue of price and financial stability in central banking. I first explore the conduct of central banks in achieving price stability, in particular in the context of inflation targeting, and then move on to how the financial stability mandate has to be included as a key component of modern central banking. I end with a few concluding remarks. [End Page 1] Central Banks and Price Stability As mentioned above, central banks in advanced economies have long been focused mainly on ensuring low inflation. Moreover, some scholars and practitioners argued that price stability should be the only objective of central banks, so that the goal would be more credible and monetary policy more effective in achieving stability. How exactly or operationally to achieve this target was an open question, however. Some central banks tried to target monetary aggregates, others to peg nominal exchange rates, and others to use an eclectic mix of indicators. Two decades ago, some central banks started conducting monetary policy targeting a specific value or range for the inflation rate. This trend started with New Zealand in 1990 and was followed by Canada, the United Kingdom, Australia, and Sweden in the early 1990s. This is a case in which policy development led academic advances. Progress on the academic front provided further impetus to the adoption of inflation targets as new models were developed to provide the theoretical underpinnings of inflation targets and the basis to conduct empirical work.2 This view was further justified by the success of monetary policy around the world in providing stability, not only on the inflation front, but also in activity and employment. The evidence that output volatility declined significantly in the United States after the mid-1980s was first reported by Kim and Nelson and later called the Great Moderation by Stock and Watson.3 Several factors could be behind this trend, such as technical progress, better policies, deeper financial markets, and sheer good luck. Although there is no final verdict, evidence points to the role of better macroeconomic policies.4 Emerging market economies also enjoyed a Great Moderation, but it came in the second half of the 1990s, much later than in developed economies. This coincided with the time in which inflation was conquered, supporting the hypothesis that it was good policies rather than good luck.5 It is easy to discredit the Great Moderation in the current juncture. However, the resilience of emerging market economies to the global crisis was impressive. Indeed, emerging markets had a recession, but much milder than in the past and with a remarkable recovery. This was, of course, the consequence of much better macroeconomic management. [End Page 2] The case of Chile illustrates this point. The economy did suffer a recession, but the size of the initial impact and the speed of the recovery were quite...

Chaikovskyi Ye.Ya. MODEL FOR ASSESSING AND FORECASTING THE FINANCIAL STABILITY OF THE BANKING SYSTEM OF UKRAINE Purpose. The aim of the article is to develop a model for assessing the financial stability of the banking system based on the integral financial stability index, which will contribute to maintaining the economic security of the state, as well as the application of the scenario forecasting method to take into account various risks and uncertainties affecting the stability of the banking system. Methodology of research. The following methods were used during the study: the indicator normalization method – to bring the indicators to a single scale (0; 1); the expert assessment method – to determine the weighting coefficients; the weighted average index method – to calculate the integrated financial stability index; the comparative analysis method – to determine the optimal ranges for each indicator; the statistical method – to analyse the variability of indicators over the years, identify trends and correlations between different elements of financial stability; the generalization method – to form the main results. Findings. The integrated financial stability index (IFS) is considered as an important tool for assessing and modeling the resilience of the banking system to economic and financial shocks. The methodology for calculating the IFS is presented, which includes five stages: selection of key financial stability indicators, normalization of indicators, determination of weight coefficients, calculation of the integrated indicator, and classification of the level of stability of the banking system. Based on this methodology, the IFS was calculated for the period 2019-2024 and the forecast for 2025-2030 under three scenarios (pessimistic, baseline, and optimistic). The results indicate the effectiveness of using scenario analysis to predict the stability of the banking system, which allows taking into account various risks and economic factors, as well as assessing the system's ability to respond to changes in the economic environment. Originality. The application of the integrated financial stability index of the banking system as an important tool for assessing and modeling financial stability, as well as the scenario forecasting method, which allows taking into account various risks and uncertainties affecting the stability of the banking system, has been further developed. Practical value. The results of the conducted research provide a deep understanding of the tools for assessing and modeling financial stability. In particular, the results contribute to improving the policy of the NBU and other state bodies regarding the timely identification of problems in the banking system and making informed decisions to support the stability of the financial sector. The application of the scenario forecasting method allows assessing future risks and uncertainties that may affect financial stability, as well as developing strategic plans to strengthen the system under different economic scenarios. This makes it possible to respond more effectively to possible economic shocks and adapt macroprudential regulation policies, ensuring the stability of banks and the stability of the economy as a whole. Key words: financial stability index, banking system, macroprudential indicators, capital ratios, liquidity, credit risk ratios, return on assets, return on capital, normalized values, integrated values.