A METHODOLOGY FOR CALCULATING BANK VIABILITY: ADJUSTMENTS FOR LIQUIDITY AND CAPITAL SURPLUSES

Abstract

This article develops a comprehensive banking viability index for the Republic of Moldova’s banking system, incorporating key dimensions such liquidity, capital adequacy, profitability, management efficiency and ownership structure. The study highlights the importance of adjusting viability assessments, maintaining an optimal balance of liquidity and capital, not to meet regulatory requirements only, but to prevent the misallocation of financial resources. Results indicate that incorporating adjustments for excess liquidity and capital leads to reduction in the viability index, offering valuable insights for banking supervision, policy formulation and risk assessment. Therefore, excessive capital or liquidity, while providing a buffer against risks, may lead to opportunity costs by diverting funds from productive investments that could stimulate economic growth.