Economic growth and banking stability nexus in crisis times

This working paper seeks to confirm the existing evidence on the relationship between banking sector stability and economic activity. A Panel VAR model on 13 European countries for the period 1996 – 2014 is used. The level of banking sector stability is proxied by the Z-score, economic activity is represented by GDP growth while other variables are used in the model as controls. Analysing three distinct periods – i.e. 1996-2014, 1996-2006 and 2006-2014 – on two groups of countries – i.e. more and less stable –, the results demonstrate that while countries appear to behave similarly during calm periods, under more stressful times the outcomes turn out to be different