Determinants of License Withdrawals of Russian Banks

Ensuring financial stability of the banking sector is vital for sustaining economic growth in a country. Stability and financial strength of credit institutions predetermines economic stability, and, therefore, the problem of financial stability and instant detection of viral banks is a critical issue. In this regard, it is interesting from research view to identify those elements, which have significant impact on improving the bank’s financial stability and thus decrease the probability of revocation of a banking license. The research question lies thus in identifying and measuring elements, which have a significant effect on the probability of license revocation event for banks. This research employs the binary choice model. More specifically, the stochastic model is used. The period of interest is years 2010-2016. The dataset includes observations of both functioning banks and those banks, which got their licenses revoked during the period. As a result, the following research question is addressed: “Stability of which elements (factors) should be ensured to reduce the probability of license revocation?”