Do regulatory stringency and household indebtedness affect financial stability? An analysis of the market for non-bank lending institutions in selected Central and Eastern European countries

The aim of the paper, which provides a comparative analysis of the regulatory framework for non-bank lending institutions in 12 CEE countries, is to answer 2 questions: (a) is the level of household indebtedness a sufficient indication that consumer credit risk is considered important for financial stability?; and (b) is the level of stringency of supervisory regulation of non-bank lending institutions related to financial stability risk? The conducted analysis leads to a conclusion that the stringency of regulations on the operation of non-bank lending institutions does not affect risks arising from the economic and financial performance of lenders, and that the level of household indebtedness is not closely related to the quality of portfolios of non-bank lending institutions. Of key importance, from the point of view of financial stability and the fulfillment of the role of non-bank lenders as institutions supporting the credit inclusion process, is the quality of the credit assessment procedure and its transparency, as well as the reliability of the source data on which credit decisions are based. The research fills an existing gap in the economic literature for a comparative analysis of non-bank lending institutions in CEE countries from a supervisory and regulatory perspective and in terms of creating financial stability.