THE EFFECT OF THE EARLY WARNING INDICATORS OF BANKING CRISIS ON BANKING FINANCIAL POLICY: EVIDENCE FROM IRAQ

Abstract

This research seeks to identify crisis early warning systems (EWS)  to predict the likelihood of banking and to see how early warning systems affect banking policies. The paperaims to study the efficiency of early warning systems for banking crises to predict the likelihood of the Iraqi banking system being exposed to banking crises.This can be explained by the rise in the ratio of private sector credit to GDP because of increased financial services and improved financial intermediation.This indicator highlights the financing role of banks in stimulating economic activity by contributing to GDP.It also demonstrates the reform directives in the banking sector towards supporting the private sector to contribute to economic development and emphasizes the high performance and developments of the banking sector at the level of its effectiveness and efficiency.Theresults alsoshow the success of the deposit policy for the banking sector in Iraq, as the ratio of total deposits to total assets reached an increasing general trend during the duration of thestudy. The rise in this ratio indicates the ability of banks to use savers' money to cover the needs of the economic sectors, reflecting the absolute improvement in the ability to attract deposits.It also means the ability of assets to cover deposits for the Bank or to maintain a fixed percentage of them, which means that the Bank controls its deposits.The results also reveal the failure of the liquidity policy of the banking sector in Iraq as a result of the increase in liquid amounts held by theBank in its coffers with the Central Bank compared to the volume of deposits and other obligations.This may affect the Bank's ability to achieve its profitability target because the high liquidity rate will have an adverse impact on profits as it reflects the low rate of loan recruitment from deposits as well as the reduced risk of bank liquidity. The results of this study provide a better understanding of the nature of the relationship between the banking crisis early warning system and banking policies.This is done by identifying leadership indicators that include a range of economic, banking, financial and monetary variables that issue signals before the crisis occurs, thereby reducing their repercussions and effects.