Commercial Banking and Financial Stability: Evaluating Internal and External Determinants

Abstract

This study explores the correlation between commercial banking operations and their impact on financial stability. It ranks the various banking activities arising from the risk-mitigating measures and regulatory constraints that altogether build up the resilience of the financial sector. It seeks to identify means that either foster or impede stability, aiming eventually to give helpful clues to policymakers, financial regulators, and banking practitioners in their efforts to sustain the economy. People targeted during the research were seasoned senior managers from different commercial banks with two representatives from each institution selected through the random sampling technique. To assess the correlations between the independent and dependent variables, inferential statistical tools were used for regression analysis and correlation tests. Financial stability, the study reveals, is dependent on a variety of internal dynamics, including operational costs, size of firms, board composition, capitalization levels, interest rate policies, and labor productivity. The study further emphasizes that commercial banks could strengthen their financial viability through financial innovations, strategic policy decisions, increased income avenues, sound financial reconciling methodologies, and well-structured oversight mechanisms. These measures collectively assist in managing both internal and external pressures, enabling banks to maintain their stability in an evolving economic landscape. Additionally, the study recommends enhanced training programs for banking personnel to improve risk assessment capabilities and regulatory compliance, further strengthening the financial sector's resilience.