And a stability-oriented central bank should not seek a trade-off between monetary stability and financial stability; this will soon lead to monetary policy arbitrariness.
In particular, internationally operating banks have been affected by the adverse capital market behaviour owing to the high proportion of their investment banking and asset management business. Banks that focus on retail banking and have a strong franchise in domestic markets have fared best under the prevailing circumstances. In our analysis we have focused, in particular, on banks’ heightened credit risks.