Dependent Variable

Banking and Financial System Stability

According to Garry’s (2004) it is the ability to: A. encourage both a proficient allotment of economic resources, both spatially and particularly inter temporally, and the adequacy of other economic processes (for example wealth accumulation, economic development, and ultimately social prosperity), B. assess, evaluate, allocate, and oversee financial risks; and, C. keep its capacity to play out these key functions, notwithstanding when influenced by external shocks or by a buildup of volatility, principally through self-remedial mechanisms.


Independent Variable

Internal Capital Adequacy Assessment Process

According to Justin (2013) , the Internal Capital Adequacy Assessment Process is de-fines as the:

bank’s internal process for assessing its overall capital adequacy in relation to its risk profile and strategy for maintaining their adequate capital levels. The ICAAP should be: proportional to the size and complexity of the bank, risk and capital management to match risk taking, not something that should be designed only for compliance purposes, but helps to ensure that the bank identifies, measures and reports all material risks (not just Pillar 1 type risks).


Independent Variable

Pillar I Risks

According to Edgar (2005) , as well as Shri (2005), Pillar I risks are comprised of: Credit Risk, Market Risk, and Operational Risk. Credit Risk is defined as the potential that a bank’s borrower or counterparty will fail to meet its obligations in accordance with agreed terms (BCBS, 2000). Market Risk is defined as the risk of loss arising from the movements in market prices such as interest rates related to instruments and equities in the trading book, or exchange rates, or from fluctuations in bonds, equities or commodity prices (BCBS, 1996). The Bank of International Settlements (BIS, 2011) defined the Operational Risk as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. This definition includes legal risk, but excludes strategic and reputational risk.


Independent Variable

Pillar II Risks

According to Basel Accords (2010, 2011), Pillar II risks are those risks not captured under pillar I, such as, Interest rate risk in banking book (the exposure of the bank’s financial condition to adverse movements in interest rates), Liquidity risk (when the bank is unable to finance any increase in the assets, or to meet the liabilities when they are due, or being able to carry on this with unaccepted losses), Strategic risk (external events and trends that can devastate a bank’s growth trajectory and shareholder value), and Reputation risk (the current and prospective risk to earnings and capital arising from the adverse perception of brand/image of the bank by customers, counterparties, shareholders, regulators and rating agencies). The Central Bank of Egypt is following the same Basel pillar risk types and definitions across the Egyptian banking market (CBE 2009a, 2012a, 2016a) .