An explorative analysis of Italy banking financial stability

Matteo Foglia and Eliana Angelini ()
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Eliana Angelini: Department of Economics, “G.d''Annunzio†University of Chieti-Pescara

Economics Bulletin, 2019, vol. 39, issue 2, 1294-1308

Abstract: This paper provides a quantitative measure for the financial stability of Italy banking sector. First, we construct an indicator that summarizes the information about the health of Italy's banking system, the Bank Condition Index (BCI). The index is constructed with capital adequacy, asset quality, earnings and liquidity (CAEL) indicators. The major advantage of BCI is that can be useful for initial identification of bank soundness and can be helpful to identify the principal areas of weakness. Furthermore, we apply AR model to evaluate the predictive power of the BCI on GDP growth. The results identify that the BCI is an important predictor of real economic activity. Finally, we study the relationship between the BCI and systemic risk measures (DCoVaR, SRISK, DCI), finding that an increase of systemic risk implies a reduction of bank-financial stability.

Keywords: Composite Index; Bank vulnerability; Financial Stability; Systemic risk (search for similar items in EconPapers)
JEL-codes: E3 G2 (search for similar items in EconPapers)
Date: 2019-05-31
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Persistent link: https://EconPapers.repec.org/RePEc:ebl:ecbull:eb-19-00071

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