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Evaluation of Banks Financial Stability Using Prudential Norms Statistics

Student: Anna Shatalova

Supervisor: Nikolay Pilnik

Faculty: Faculty of Economic Sciences

Educational Programme: Economics (Bachelor)

Year of Graduation: 2019

The stability of the banking system is one of the priorities of state economic policy. Due to the high importance of this economic sector, the banking sphere is strictly regulated by the Central Bank. It establishes the mandatory requirements for all credit organisations in Russian Federation. Despite the ongoing monitoring, banks often face license revocation, which can cause a number of negative consequences for the entire economy. In this regard, the development of early warning systems for defaults is as relevant as ever. The purpose of this study is to model the behaviour of the Central Bank regarding license revocations. It is necessary to understand which indicators are decisive for predicting default. Lasso-regularization was used to develop various models of license revocation forecasts for the period of 2011-2018. Models take into account both the various reasons for the withdrawal and the sets of defining variables. In addition to the traditionally used financial indicators and macroeconomic variables, indicators of mandatory standards were used. As a result, it turned out that the inclusion of both macro factors and indicators of mandatory requirements of the Central Bank improves the separating ability of models. Also, it is worth mentioning that determinants of defaults for reasons of violations of capital requirements, insolvency, money laundering are different sets of variables. In addition to the fact that mandatory regulations have predictive power when discriminating between two types of banks, they have a substitute effect of macroeconomic variables.

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