Measuring the Financial Stability: A Focus on the Banking Sector of Bangladesh

Abstract

The study gives concentration on the stability of financial system. A well-established method is selected to find out the composite financial stability index. Along with this, the study explains the riskiness of the country based on economic risk, political risk, and financial system risk. The regulators, policymakers, and the government should pay attention to these factors that are responsible for increasing country risk and make the financial system unstable. The study will assist the policymaker and the regulator for their better understanding of financial structure that will lead them to update the existing rules or formulate new reporting conventions. In the last two decades, the global financial crisis has created concerns about the stability of the economy's financial system and its dependence on other sectors of the economy. The study encapsulates the major indicators of the financial system and quantitatively showed its position over the period. It is found that the growth of composite index sharply increased in the mid of 2008, but among the indices, it experienced stress due to high inflationary pressure and high oil price in the global market. It is found that the financial system of Bangladesh was comparatively stable during the period 2012 to 2016.

Keywords: Financial Stability, Country Risk, Banks, Bangladesh.