Revisiting Banking Stability Using a New Panel Cointegration Test

Using a new panel cointegration test that considers serial correlation and cross-section dependence on mixed heterogenous sample of Saudi banks, we revisit the cointegrating equation z-score index banking stability. Our results show even when consider dependency errors, there is possibility long-run relationship, which holds in our banks. Furthermore, medium term, found some banks to be integrated, whereas others were non-cointegrated. We interpret this suggest contribute stability, do not. In other words, exists at least one bank acts as destabilizer challenge for financial regulators identify these are. However, current version Hadri et al. does not allow identification non-cointegrated If was able that, regulatory authorities would develop corrective policies/measures specifically tailored units.