Current approaches to the financial system stability assessment

Abstract

Introduction. Financial crises of late XX and early XXI centuries have conditioned the necessity of developing methodological tools for financial system stability assessment which could be able to reflect not only the financial institutions’ soundness in short-run perspective, but also consider negative effects of financial system destabilization in long-run causing the development of financial crises.

Purpose. The purpose of the paper is the theoretical justification of the financial stability assessment methodology.

Results. The paper presents the comparative analysis of main approaches to the financial stability assessment which is used by leading international institutions and central banks. The research has revealed that current approaches mostly consider only financial institutions’ soundness aspect, which forms the financial system. The analysis of financial ratios requirements of Ukrainian banking sector and the aggregate financial soundness indicator suggests that the use of such approaches is not enough in ensuring financial stability and preventing financial crisis. The paper stipulates that together with the financial institutions soundness the depth financial system stability assessment should include the analysis of financial risks that occur within the financial system and real economy in general.