Financial Security Index

China’s financial security index, Financial security is the key to a country’s economic security because once a financial crisis breaks out, it will infect the real economy and further threaten national economic security. Since the 1990s financial crises have broken out in Mexico, Asia, Russia, Brazil, and the Americas, doing enormous damage to the world economy and social development. How to accurately measure and evaluate a country’s financial security in a comprehensive manner or carry out risk warnings accurately to prevent financial crises has become the focus and the most difficult part of world financial research. Especially in 2007 there was a subprime crisis in America and then it quickly spread around the world. The original evaluation and early warning methods that focused on banking and currency crises were challenged and studies of financial risk began to pay more attention to relevance and infection within the financial system and system risk. For China, on the one hand, systematic risks that may be triggered by internal factors such as China’s shadow banking system including trust companies and financial products, local government debt and real estate bubbles are constantly piling up; On the other hand, by continuously improving the mechanism for formulating the RMB exchange rate and implementing financial reform measures such as accelerating market-oriented interest rate reform, the financial industry is becoming more open and the financial system is increasingly exposed to external impact risks. . As a result, it is very important to choose the right method for measuring financial security and carry out a scientific and comprehensive evaluation to prevent a systematic crisis from breaking out in time.
There are three main methods used in the comprehensive financial crisis early warning and evaluation literature. The first is a financial crisis early warning model, the second is a model for measuring the contagion effect of financial risk among different financial areas, and the third is a variable-combined synthetic index that captures all the main features of financial risk. a number of studies on financial crisis early warning models, such as the STV cross-country model (Sachs, Tornell & Velasco, 1996), KLR signal analysis (Kaminsky, Lizondo & Reinhart, 1998), probit/logit FR model (Frankel & Andrew, 1997). After the US subprime mortgage crisis in 2007, systemic risk measurement models of the contagion effect of financial risk were widely used in empirical studies, such as the GARCH Model (TimBollerslev, 1986), a network approach, which tracks the echoes of credit events or liquidity squeezes across the financial system (IMF). , 2009), CoVaR measure (Adrian & Bmnnermeier, 2008). Synthetic indices combined with variables are an important tool to apply to predict probable financial crises. Using statistical and econometric techniques, the variables are combined into a single index that captures all the main features of financial risk. Compared with the previous two methods, the synthetic index has the following advantages, such as simplicity, clarity, operational flexibility, maintaining sequence continuity, etc. The measure of financial stress index is the application of the synthetic index method. Illingn and Liu (2003) first proposed the concept of financial stress and developed an index of financial stress called the financial distress index (FSI) for the Canadian financial system. Das, Iossifov, Podpiera and Rozhkovl (2005) developed a multi-country financial system pressure index called the financial pressures index and financial policy quality index called the financial policy quality index (IQFP) and used it in a regression analysis of the determinants of financial pressures. Moriyama (2010) developed an index of the financial pressures of emerging market (EM) economies in the Middle East and North Africa (MENA) to estimate the spillover of the global crisis to MENA EM countries. Hakkio and Keeton (2009) combined 11 variables that capture the main characteristics of financial distress into a new index called the Kansas City Financial Stress Index using principal component analysis. They suggest that policy makers would benefit from having a comprehensive index to determine when financial stress is high enough to require intervention and when stress levels have decreased enough to warrant termination of the special lending program. Balakrishnan, Danninger, Elekdag and Tytell (2009) studied how financial pressures, defined as periods of interrupted financial intermediation, were transmitted from developed to developing countries using the new FSI for developing countries. Cardarelli, Elekdagand Subir (2009) identified Financial Security episodes of financial turmoil using the FSI, and proposed an analytical framework for assessing the impact of financial pressures, especially banking difficulties, on the real economy.