Stability of the euro area banking sector since the SSM implementation: deriving ABSI with ESG component included

Emilija Popovska () and Marko Košak
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Emilija Popovska: School of Economics and Business, University of Ljubljana (SEB LU)
Marko Košak: School of Economics and Business, University of Ljubljana (SEB LU)

Journal of Banking Regulation, 2025, vol. 26, issue 3, No 10, 474-502

Abstract: Abstract This study aims to evaluate the stability of the euro area banking sector since the implementation of the Single Supervisory Mechanism (hereinafter: SSM). For that purpose, aggregate bank stability index (hereinafter: ABSI) was constructed on a yearly basis, covering the period since 2014—the year when the SSM was implemented, until 2023. The index was constructed as a weighted sum of the stability indices of significant and less significant banks and the index composed of environmental, social and governance (hereinafter: ESG) factors. Findings suggest that stability of the euro area banking sector improved since the SSM implementation. While no statistically significant differences in stability between significant and less significant banks were found, empirical evidence indicates that significant banks have been improving their stability at a quicker pace since the implementation of the SSM. Nevertheless, the outcomes vary across different countries. Moreover, statistically significant effect of the ESG component on bank stability was identified.

Keywords: Bank stability index; Banking sector stability; Euro area; Single Supervisory Mechanism; ESG (search for similar items in EconPapers)
JEL-codes: C43 G21 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1057/s41261-024-00265-8

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