Operational control over the financial stability of banking

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Maintaining proper financial stability of each banking institution is one of the main tasks facing the banking system of Ukraine. This enables operational control over the financial strength of banking activities.
The purpose of the article is to develop recommendations on the operational control of financial stability of banking and to test them using banking institutions in Ukraine as an example.
To execute operational control over the financial stability of banking, economic standards of banking regulation are grouped under the “at least” or “not exceeding” principle. To determine their change over time, Shewhart control charts are proposed.
The recommendations were tested through the example of the Ukrainian banking institutions (with state, foreign and private capital). It was found out that in 2017–2019, the following three economic standards of banking regulations were not met: regulatory capital adequacy, high credit risk, and average investments; besides, there were two standards at the limit of control value: the ratio of regulatory capital to total assets and the maximum amount of credit risk per counterparty.
To improve the financial status of banking institutions, it is recommended to take organizational and financial measures to change the average value of the relevant economic standards for banking regulation to a level that ensures financial stability.

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    • Figure 1. The Shewhart chart for the H2 (regulatory capital adequacy) evolution
    • Figure 2. The Shewhart chart for the H3 (regulatory capital to total assets) evolution
    • Figure 3. The Shewhart chart for the H4 (instant liquidity) evolution
    • Figure 4. The Shewhart chart for the H5 (current liquidity) evolution
    • Figure 5. The Shewhart chart for the H6 (short-term liquidity) evolution
    • Figure 6. The Shewhart chart for the H7 (maximum credit risk per counterparty) evolution
    • Figure 7. The Shewhart chart for the H8 (high credit risk) evolution
    • Figure 8. The Shewhart chart for the H9 (high loans, guarantees and sureties given to one insider) evolution
    • Figure 9. The Shewhart chart for the H10 (high aggregate loans, guarantees and sureties given to insiders) evolution
    • Figure 10. The Shewhart chart for the H11 (investment in securities separately for each institution) evolution
    • Figure 11. The Shewhart chart for the H12 (total investment ratio) evolution
    • Table 1. Economic standards for operational control over the banking activities’ financial stability that are unilaterally restricted under the “at least” term or (≥)
    • Table 2. Economic standards for operational control over financial stability of banking activities that are unilaterally limited under the “not exceeding” term or (≤)