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In the recent financial crisis, many observers have assigned monetary policy a central role in the crisis. Specifically, they claim that excessively easy monetary policy by the Federal Reserve in the first half of the decade helped to cause a bubble in housing prices in the USA. The purpose of this paper is to analyze the role of monetary policy within the regulatory frameworks of financial markets.

The authors show within a macroeconomic framework a possible trade‐off between price stability and financial stability by differentiating between a technology‐driven bubble and an animal spirit bubble. In their conclusion: if there is a trade‐off between price stability and financial stability, the central bank will have to make a choice between the two objectives. In that case, the question arises of which of the two objectives should take precedence: price stability or financial stability?

From this analysis, the authors conclude that a central bank which uses a lexicographic ordering favoring price stability over other objectives is likely to fuel the boom inadvertently (in the case of a technology‐driven bubble) or will decide to do nothing (in the case of an animal spirit bubble) allowing a process of excessive credit creation. The latter seems to be what happened between 2003 and 2008.

If one wants to reduce the likelihood of future major financial busts, it must be accepted that the central banks (especially the Fed and the ECB) cannot only be responsible for price stability. Maintaining financial stability by preventing excesses in financial markets should be an equally important objective.

The paper gives a new perspective on the role of monetary policy within the regulatory framework. With this macroeconomic framework, the authors are able to show possible trade‐offs between price stability and financial stability. The micro‐ and macro‐prudential approach of this paper is a useful contribution to the discussion about regulatory reforms of financial markets.

The study aims to find out the impact of financial inclusion and financial development on financial stability using panel data from eight countries in the Middle East and North Africa (MENA).

To achieve the aim of the study, the researcher prepared two indicators of financial inclusion and governance to find out the impact of financial development on the relationship between financial inclusion and financial stability. Data on financial inclusion was obtained from the International Monetary Fund, data on financial development and financial stability were obtained from the World Bank.

The results of the fixed and random effect methods show that financial inclusion has a significant positive effect on financial stability. Additionally, financial development represents a moderating variable in the significant positive effect on the relationship between financial inclusion and stability in the MENA countries.

The current study suffers from some limitations that researchers must be aware of in future research. First, there is an inability to determine qualitative aspects such as time and cost when designing a composite indicator of financial inclusion. Second, due to limited data, we used only eight countries from the MENA. It is suggested to expand the sample to include other countries.

This paper contributes to the related literature between financial inclusion and financial stability by confirming or denying the results of previous studies. Also, to the best of the author’s knowledge, this paper is the only one that explains the role of financial development in the relationship between financial inclusion and stability in MENA countries, using a composite index to calculate financial inclusion. Finally, the study seeks to focus the attention of the government and policymakers to build a system of financial inclusion that leads to improving financial stability.

This study aims to examine the role of financial inclusion and institutional factors such as corruption and the rule of law (RL) on the credit risk and stability of banks.

The study considers a sample of 61 developing countries and uses very robust estimation techniques that allow controlling for endogeneity, heteroskedasticity and serial correlation, such as instrumental variables method in two-stage least squares (IV-2SLS), instrumental variables generalized method of moments (IV-GMM), as well as system of generalized methods of moments in two stages (Sys-2GMM).

The results confirm that financial inclusion and strengthening the RL can significantly contribute to reducing credit risk and improving the financial stability of banks; in contrast, the authors find that weak control of corruption aggravates credit risk. In addition, they found that greater competitiveness in the banking sector increases credit risk.

This study supports the need to promote financial inclusion and strengthen institutional factors to improve the stability of the banking sector, as well as promote general well-being in the economy.

This study contributes to the scarce literature by simultaneously using institutional factors such as corruption and the RL and macroeconomic variables such as economic growth and inflation in the relationship between financial inclusion and the banking sector, as well as considering competitiveness as an explanatory factor for banks’ credit risk and stability.

This chapter is devoted to the issue of ensuring financial stability in the state. The main goal of the research is to determine the role and policy of the National (Central) Bank, which was called up, together with the Government, to ensure financial stability in the Republic of Belarus. The actions of the National Bank for the implementation of monetary policy, macroprudential regulation, and supervision are reviewed. It is noted that the regulation and supervision of banks, nonbank credit and financial organizations, the payment system, the sector of other financial intermediaries (leasing activities, microfinance activities, activities of forex companies) is carried out by the National Bank of the Republic of Belarus. The main practical actions of the Government and the National Bank aimed at maintaining and ensuring financial stability is highlighted: monitoring of financial stability (goals, tasks, objects, monitoring directions are defined); creation of the Financial Stability Board (goals, objectives, representation, personal responsibility); disclosure of information on financial stability is carried out on an ongoing basis – the publication of the analytical review “Financial Stability in the Republic of Belarus.” The research provided a summary of the state of the country's financial sector and presented the achievements of the National Bank and state institutions for ensuring financial stability. The main problems affecting financial stability are highlighted: insufficient efficiency of the activities of large enterprises of the real sector of the economy; high levels of credit risk in banks; high dollarization of bank balance sheets. The directions of development of the financial market of the Republic of Belarus, contributing to ensuring financial stability are presented.

This current research tries to answer the widespread debate about the role of derivatives in propagating the last financial crisis. So, this work aims to examine the effect of derivatives on bank stability in emerging countries by using the bank stability index (BSI) as developed by Ghosh (2011) from three major dimensions of banking operations: stability, soundness, and profitability. We use the generalized method of moments (GMM) estimator technique developed by Blundell and Bond (1998) to estimate regressions during the normal, the turbulent, and the whole period, following the guidance given by Chiaramonte, Poli, and Oriani (2013).

The major conclusion of this study reveals that except to futures the other derivative instruments cannot be considered as troubling factors. The main implication of the research shows that derivatives – in general – are not responsible for the propagation of the recent financial crisis. Hence, the common debate accusing derivatives as being responsible for the aggravation of the recent financial crisis should be rejected.

This paper aims to investigate the determinants that contribute to the financial stability and banking sector of Palestinian banks listed on the Palestine Stock Exchange (PEX) by using yearly data for the years 2012–2022.

Pooled ordinary least squares (OLS) and two-stage least squares (2SLS) were used to identify the variables and factors affecting the financial stability and banking sector of Palestinian banks. The study’s data were collected from the banks listed on PEX and from the yearly reports posted on the Palestine Monetary Authority’s (PMA) webpage over the years from 2012–2022. According to this research’s analysis, SMEs loans and capital sufficiency have a statistically significant positive impact on the stability of Palestinian banks. Unobserved heterogeneity, simultaneity and dynamic endogeneity are taken into account when using the 2SLS regression approach to adjust for the study endogeneity factor.

The study’s findings show that some factors and determinants might have both good and negative effects on financial stability and banking sector. Loans to small and medium-sized businesses (SMEs) and enough capital are two characteristics that statistically have a major favourable impact on the stability of Palestinian banks since they help the banks withstand deficits. A further potential discovery relates to the favourable effects of financial inclusion (FI) and digital financial services (DFS) on the stability of banks.

This research has faced some limitations, such as the lack of a defined index from the regulatory organizations, this research is based on information from bank annual accounts. It has mostly relied on self-developed or World Bank indexes. Furthermore, the research solely used information from the supply side (banks); demand-side data were not taken into consideration.

This paper has managerial implications for stability of banking sector. The Palestine Monetary Authority, as the central bank, must increase the percentage of bank loans directed to small and medium-sized companies and oblige bank management to adhere to adequate capital standards, which contributes to strengthening the Palestinian banking sector and increasing its profits. The study findings advise banks that are enjoying financial stability to speed up the pace of FI and DFSs because most of these reliable banks have relatively low FI ratios. PMA is responsible for preserving the stability of the financial system. PMA, decision makers and banks management must retain adequate liquidity in their institutions and raise client collateral expectations to raise credit conditions.

This paper adds some contributions to the literature. To adjust for discrepancies between various types of banks, the authors concentrate on conventional and Islamic banks, which enables us to use a homogenous data set as opposed to depending on dichotomous variables. The authors used Z-scores, which have recently been used in research, to measure stability and FI at the level of specific institutions. This research contributes in some key aspects that no prior research has addressed. Conventional banks are different from Islamic banks, and a number of issues might impact their stability. To evaluate the connection between FI and DFSs, it is important to consider the actions of bank regulators.

Financial stability has become a focal point for central banks since the global financial crisis. However, the optimal mix between monetary and financial stability policies remains unclear. In this study, the “soft” approach to such policy mix was tested – how often monetary policy (in inflation reports) analyses financial stability issues. This paper aims to discuss the aforementioned objective.

A total of 648 inflation reports published by 11 central banks from post-communist countries in 1998-2019 were reviewed using a text-mining method.

Results show that financial stability topics (mainly cyclical aspects of systemic risk) on average account for only 2%of inflation reports’ content. Although this share has grown somewhat since the global financial crisis (in CZ, HU and PL), it still remains at a low level. Thus, not enough evidence was found on the use of a “soft” policy mix in post-communist countries.

Given the strong interactions between price and financial stability, this paper emphasizes the need to increase the attention of monetary policymakers to financial stability issues.

The study combines two research areas, i.e. monetary policy and modern text mining techniques on a sample of post-communist countries, something which to the best of the authors’ knowledge has not been sufficiently explored in the literature before.

Shadow banks or non-bank financial intermediaries (NBFIs) are facilitators of credit, especially in emerging market economies (EMEs). However, there are certain risks associated with them, such as their unchecked leverage and interconnectedness with the rest of the financial system. In light of this, the present study analyses the impact of the growth of shadow banks on the stability of the banking sector and the overall stability of the financial system. The authors further examine the effect of the growth of finance companies (a type of NBFIs) on financial stability.

The study employs data of 11 EMEs (monitored by the Financial Stability Board (FSB)) for the period 2002–2020 to examine the above relationships. Panel-corrected standard errors method and Driscoll–Kray standard error estimation are deployed to conduct the analysis.

The results signify that the growth of the shadow banking sector and the growth of lending to the shadow banking sector are negatively associated with the stability of the banking sector and increases the vulnerability of the financial system (overall instability). This implies that the higher the growth of the shadow banks, the higher the financial fragility. Finance companies are also found to negatively affect financial stability. These findings are validated by different estimation methods and point out the risks posed by the NBFI sector.

The extant study builds a composite index (Financial Vulnerability Index (FVI)) to measure financial stability; thus, the findings contribute to the evolving literature on shadow banks.