Stability Mapping for Risk Management in Banking Companies
Keywords:Banking, Risk Management, Stability Map, Financial Stability, Stability Indicator
Assessment of financial stability is a crucial and challenging task for most banks. Numerous approaches are used for the assessment of financial stability to determine the operation of the banks under stress conditions and to identify the indicators that affect the financial developments of the system. The relationship between the macroeconomic variables and financial markets can be assessed by performing stability mapping. Risk management can be performed by accurate identification of stability indicators, appropriate assessment of deterioration in asset quality, and other economic aspects. Financial stability reports (FSRs) and heat maps are used in several banks for the assessment of risk factors that affect financial stability using minimal indicators. This paper provides a detailed study of the stability mapping schemes used for risk management in the banking sector. Mapping schemes like banking stability map (BSM), Global financial stability map (GFSM), self-organizing Map (SOM), and construction of financial stability maps (FSM) are discussed. An overall evaluation underlying parameters and inherent risk factors that affect the banking stability is performed using banking stability map. The indicators involved in the profitability of capital and banking sector as well as financing and liquidity of the system are discussed thoroughly. Stability mapping enables appropriate risk management by identifying the crucial indicators for shock absorption in banking.
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