BIS Economists Blaise Gadanecz and Kaushik Jayaram have written a superb literature survey on measures of financial stability.
This paper is a modest contribution to review the work done towards developing quantitative measures of financial stability and their use in published FSRs. The paper is structured as follows. In Section I, we look at definitions of financial stability and what they mean for identifying key variables, which we discuss in Section II. In Section III, we review how these individual variables might be combined into composite indicators for the purposes of monitoring key sectors of the economy and assigning critical values. In Section IV, we provide a comparative view of the main variables and indicators used in selected FSRs. In Section V we discuss recent attempts to construct a single aggregate measure of financial stability. The final section concludes.
Very useful primer on financial stability measures. Not surprisingly, lots of issues still remain despite loads of work. The concept of financial stability itself is in unstable stages.