Page 92 - Azerbaijan State University of Economics

CONTRIBUTION OF BANKING SYSTEM INTO FINANCIAL STABILITY OF UKRAINE

Keywords: banking system, financial stability, agency dilemma, stable
banking system, prices stability.
JEL Classification Codes: E52; E58

Introduction

Banking activity is closely connected with different areas of social life

and affects fiscal system, monetary system, stocks, currencies and insurance

markets. During last decade widening of financial intermediation has taken
place, hence, enforcing banks influence on economy. This influence may be

both constructive and destructive. Therefore, theoretical justification of banking
system essential qualities, that will foster successful realization of socio-

economic interests in financial field, has gained great importance. Banks fulfill a
number of social (i.e., transformative function, money issue and monetary

system regulation, intermediation in transactions etc.) and specific functions

(i.e., act as strategic institutions, which affect financial system stability and
determine financial system security). Hence, appropriate qualities and structural

organization of banking system are essential for efficient execution of named
above functions. But at the same time, these qualities are not imminent; they are

developed through enhancement of regulative background for banking activities,
development of compliance control system, and implementation of new

approaches to financial stability maintaining. Fixing of specific banks’ functions

by law means that society recognizes special role of banks not only in providing
financial intermediation services, but also admits it’s potential to facilitate

financial stability upholding.

While banking activity is considered to be set, the involvement of
banking system into financial stability safeguarding is yet to be recognized

by society. Because of that it is important to identify appropriate motivation
for banks to contribute into financial stability maintenance even though it

goes crosswise with their commercial interests. Although it is important to

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