Safest Banks: A Scientific Literature Review on Financial Stability and Risk Management Practices

Abstract

The concept of a "safe bank" has become a central concern for policymakers, investors, and the public following the 2008 Global Financial Crisis and subsequent periods of economic uncertainty. This paper presents a comprehensive literature review that synthesizes the key themes and findings from academic research on bank safety. In particular, the concept through three interconnected lenses: the measurement of financial stability, the internal risk management architectures of banks, and the external framework of governance and regulation is analysed. The review identifies that safety is not a singular attribute but a multi-dimensional construct, defined by a robust capital base, a resilient and integrated risk management culture, strong corporate governance, and effective prudential regulation. Key metrics such as capital adequacy ratios (CET1), the Z-score, and stress test results are discussed alongside qualitative factors like risk culture. The literature converges on the importance of Enterprise Risk Management (ERM) frameworks and the pivotal role of Basel III in elevating industry standards. Finally, this paper identifies critical gaps in the current literature, particularly concerning the integration of climate-related financial risks, the systemic implications of FinTech disruption, and the influence of organizational culture, offering a roadmap for future scholarly inquiry.