How financial intermediation impacts on financial stability?

ABSTRACT

The great financial crisis widened the role of financial intermediation in financial stability. This study develops a new financial intermediation variable, credit cash flow (CCF), which enables measurement of the net financial flow resulting from loan activity. An analysis provides evidence that CCF affects the capital buffer via credit gap behaviour, thus indicating the existence of a channel between the CCF and the capital buffer. Such a link offers the policy-maker the possibility to monitor the behaviour of financial intermediation carried out by banks, in order to avoid the outbreak of financial instability events.

KEYWORDS:

• Financial intermediation
• financial stability
• macroprudential policy
• financial regulation

JEL CLASSIFICATION:

• E44
• E58
• G38

Disclosure statement

No potential conflict of interest was reported by the authors.