Use of causal analysis to improve the monitoring of the banking system stability

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According to the stages of the banking system stability monitoring, the analysis of caus¬al links is used to identify the causes of the crisis trends spreading and the rationale for the most effective levers of regulatory influence on the banking system parameters by the central bank.
The research is based on the use of the canonical correlation method for structuring causal links between the indicators for the assessment of the banking system stability, which are grouped into four sub-indices (assessing the intensity of credit and financial interaction in the interbank market, the effectiveness of the banking system functions, structural changes and financial disproportions in the banking system, activities of systemically important banks); the method of regression analysis and the calculation of elasticity coefficients is also used to assess the sensitivity of the banking system stability to changes in parameters that characterize the banking regulation instruments.
The article analyzes the results of quantitative and qualitative assessment of the banking system stability (comparison of actual results of the evaluation with the data for previous years and comparison of values of stability indicators with critical values). The causes of detected deviations are determined taking into account the results of applying the canonical correlations method. Regression models have been constructed to confirm the dependence of the banking system stability index on the change in parameters that characterize banking regulation instruments, and to determine the most effective of them. Practical testing of submitted proposals is realized based on the Ukrainian banking system indicators for 2007–2016.

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    • Figure 1. Hypothetically determined causal relationships between indicators for assessing the banking system stability
    • Figure 2. Dynamics of changes in the stability index of the Ukrainian banking system for the 2007–2016 period
    • Figure 3. Dynamics of changes in values of components of the Ukrainian banking system stability index for 2007–2016
    • Figure 4. Dynamics of changes in values of sub-index components of the effective implementation of the Ukrainian banking system functions for 2007–2016
    • Table 1. Comparison of the assessment findings for banking system stability during the 2015–2016 period
    • Table 2. Threshold (critical) values of indicators for assessing the banking system stability
    • Table 3. Canonical models of relationships between the indicators for assessing the banking system financial stability
    • Table 4. Substantiating the most effective bank regulation tools based on the influence on the level of Ukrainian banking system stability