Financial Stability Index in Eurasian Economies

Abstract

Today’s financial markets are an important part of market economies and play an important role in the economic growth of countries. Especially the global crisis of 2008 allowed to understand the importance of the stability in the financial system on the real economy. Besides, there is no consensus in the literature for the definition of financial stability. It’s not easy to measure and define the financial stability due to the dependence and interaction between financial system components as well as real economy. Both national and international financial institutions and countries started to redesign their financial systems, increase their resilience against the crisis, review their surveillance and control mechanisms and create their own financial stability indicators. Central banks publish financial stability reports where they try to determine financial stability risks and to evaluate the degree of financial fragility or financial stress. The Financial Soundness Indicators (FSIs) of the International Monetary Funds are considered as one of the most used indicators. In this paper, we aim to evaluate the financial stability in the Eurasian Economic Union member countries by an aggregate financial instability index via core FSI’s. These indicators are calculated for deposit takers and consist of twelve indicators that are divided in five main groups which are capital adequacy, asset quality, profitability, liquidity, and market risk sensitivity. The analysis covers the period of 2008-2022 and we then discuss how different crisis such as 2008 financial crisis and the Russia-Ukraine war that emerged during the analysis period affect financial stability in Eurasian countries.