The factors that affect the stability of banking system

AuthorMarsida Kenuti (Morina) - Encola Teqja
Position'Aleksander Xhuvani 'University, Elbasan
ISSN 2410-759X
Acces online at
Balkan Journal of Interdisciplinary Research
IIPCCL Publishing, Tirana-Albania Vol. 1 No. 2
September 2015
The factors that affect the stability of banking system
Marsida Kenuti (Morina)
“Aleksander Xhuvani “University, Elbasan
Encola Teqja
“Aleksandër Xhuvani” University, Elbasan
Through this paper will give an overview of the literature related to the stability of the
banking system and the factors that affect it. Banking stability is the main pillar of
development for the Albanian economy, because it occupies the most important part of
the financial system. The study of sustainability and finding practical solutions for its
preservation is impossible to realize without studying it in theory. Scholars divide the
factors of stability in external and internal factor depending on whether vary from
institution managers and other specific decisions or are independent and unrelated to
the decisions of the managers. As internal factors are considered; size, capitalization,
liquidity, loans and their quality, efficiency, control, degree of diversification, deposits,
government. Regarding external factors included inflation, Gross Domestic Product, taxes,
market concentration, maturity, ownership. It should be noted that researchers and
authors cite other factors, but in the paper are taken into account only factors that suit
the banking system in the Albanian economy.
• To identify the factors internal and external to affect the stability of the banking and
financial system as a whole.
• The evident importance that the stability of the financial system in the country’s
economic performance.
Keywords: The sustainability of the banking system, Internal factors, External factors,
the banking system.
JEL Classification: G21.
Literature review
Evidence suggests that legal tradition, accounting conventions, regulatory structures,
property rights, culture and religion explain cross-border variations financial
development and economic growth (Beck et al., 2003a,b; Beck and Levine, 2004; La
Porta et al., 1997, 1998; Levine, 2003, 2004; Levine et al., 2000; Stulz and Williamson,
2003). Recent literature has emphasised the importance of changes in macroeconomic
conditions on the performance of banks. Bank profits are positively correlated with
movements in the business cycle (Arpa et al., 2001; Bikker and Hu, 2002) while
provisions for loan losses may exert a negative impact on economic activity (see
Cortavarria et al., 2000; Cavallo and Majnoni, 2002; Laeven and Majnoni, 2003).
In a new stage of development of literature stresses the importance of market
structure and bank-specific variables to explain performance among banks. This
stage takes place around paradigm structure - behave- performance (SCP) and was

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