“Banking System Stability Index (BSSI) proposed to Rank the Banking Systems in the Different Economies Developed ” : IIF Research Study

IIF has developed a Banking System Stability Index (BSSI) to rank the banking systems in different economies. BSSI has been developed using key financial system soundness indicators which then leads to the determination of ranks of the banking Systems in 127 countries worldwide. This is for the first time that such an index has been developed and countries based on their BSSI, have been ranked. All countries have been classified aprior based on their economic, social and regional developments based on which 127 countries have been ranked based on their banking system stability from 2010 to 2018. Ranks for each year from 2010 to 2018 for all countries, have been presented in XXXIV tables in 50 page research study.

The research study is published in Finance India –The Quarterly Journal of Finance, Vol. XXXIV No. 4, December 2020 issue titled “Developing the Banking System Stability Index (BSSI) : Comparison and Ranking of Banking System of 127 Countries”. According to the authors of the study Prof. Aman Agarwal, Professor of Finance, Director (Rektor) & Dean (International Relations), Indian Institute of Finance and Prof. Yamini Agarwal, Professor of Economics and Finance, the proposed index (BSSI) would help evaluate the banking system of different countries in comparison to all other countries and within the specific regions. It would help governments, central banks, banks, financial institutions, global investors and retail investors take more informed decisions with respect to their investments depending upon BSSI. BSSI would also help policy makers in financial governance, economic development, financial stability and countries global ranking in the financial world.

It is for the first time that a comprehensive measure to study banking system stability has been developed for 127 countries. The countries have been classified on the basis of IMF classification into Advanced and Emerging Economies and developing economies. The vulnerability of the banking system because of the global financial crisis and rising NPAs necessitates the development of an index which indicates the stability of the banking system. There is established methodology to rank Banks and Financial systems but not banking system stability. The global financial stability depends on the banking system stability of the different countries. The continuous focus of the International agencies and researches to define the prominent cause of the Banking stability is given by the six financial indicators reported by IMF. There was an urgent need to assess and review the banking system stability world wide through a comprehensive measure.

On the evaluation of the indices the overall ranking of the Advanced Economies were surprisingly lower than many Emerging and Developing economies. On the evaluation of the Financial Soundness indicators (IMF) and Moody’s Bank Credit Rating Methodology, it was found that macroeconomic profile of the economies were essential to determine the banking system stability as the confidence in the regulation and supervision and credit worthiness are essential elements of the banking system stability. The ranking was then pursued within groups and results were then defined over the last 9 years for the different rankings of different countries within the different groups.

The overall situation of banks after global financial crisis and Covid-19 poses a serious concern about a consolidated index which can estimate the health of the banking system. It was hence felt that one identifies the indicators which are important to indicate the financial health of the banking systems of the different countries. The UNDP approach is inculcated for developing index was found to be relevant to develop a Banking system stability index based on the 6 financial indicators listed in the GFSR. The analysis of the financial soundness indicators help break the myth that there exist differences in the banking systems based on these indicators in the different classifications of advanced and emerging and developing countries.

The paper reflected back on the Moody rating where the Macroeconomic profile was relevant in determining the perception of the international community in a banking system which was dependent on several macroeconomic indicators like GDP, inflation, fiscal deficit, exchange rate, current account deficit, foreign exchange reserves, debt to the GDP and others like broad money are all relevant to assess the financial stability and confidence and perception of the international community.

IIF study attempts to fill the gap in the literature that exists between bank specific ranking done by Moody’s and Financial system ranking done on the basis of FSIs. The six FSIs individually are found to be significantly different over the IMF classification of countries but not different over the time period.. The overall rankings without classifications are found to offer a much lower rank to advanced economies contrary to the expectations.
The detailed data and research methodology, comparative ranking of various countries for 9 years for each year from 2010 to 2018 including India is given in 50 page research article with XVIII tables presented and published in Finance India vol XXXIV No. 4 December 2020. The research was earlier presented in an IIF/FI international conference in which 167 prominent scholars presented over 89 research papers from 76+ Universities, 64+ Cities and 53+ countries. It was widely acclaimed.

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Finance India – 400 pages, Quarterly Journal of Finance published since 1987 is 4th best amongst 21,000 + journals published and indexed in SJIF journals rank by Scientific Journal Impact factor (SJIF) with a SJIF impact factor value for 2019 as 7.262. Its Editorial Board constitutes of over 70 Experts from all over World including 6 Nobel Laureates headed by Prof. Dr. J. D Agarwal, - distinguished professor and leading economist It is indexed and abstracted by more than 31 agencies and over 100 Universities worldwide. Finance India is ranked at par with top international journals. Finance India, SCOPUS Indexed & UGC approved Journal,

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