The Impact of the Global Crisis on the Stability of the Financial System
The Impact of the Global Crisis on the Stability of the Financial System

Summary/Abstract: We examine the impact of the recent global crisis on the stability of the global financial system. We use seven measures of stability that include Bank Z-Score, Bank non-performing loans, Bank capital, Bank credit, Regulatory capital, Liquid assets, and Provisions to non-performing loans. These data are from World Bank’s Global Financial Development Database (GFDD). Our findings indicate that during the run-up to the crisis, there was no significant change in any of the stability measures. Our findings also indicate that, during the crisis period, banks’ non-performing loans significantly increased while their liquid assets significantly decreased. Interestingly, Bank Z-Score, Bank capital, Bank credit, Regulatory capital, and Provisions to non￾performing loans did not change significantly during the crisis period. When we look at the period after the crisis, we are seeing that banks reacted by reducing credits and increasing their regulatory capital. However, during this post-crisis period, banks suffered even more because of continuing increase in non-performing loans. We are hoping that these findings on the timing of changes in these measures will help banks and policymakers in devising strategies to deal with the problems before they occur.

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