1 Chapter I Introduction This chapter presents a brief introduction to financial system vulnerabilities. It discusses when they occur, why they need to be identified by the authorities as early as possible, and why such reasoning is important. There is also key assumptions and research limitations, a research hypothesis, and a set of research questions, as well as novelty and an explanation of the structure of this dissertation. I.1 Background Recently, the world deal with a Turbulent-Uncertain-Novel-Ambiguous (TUNA). Global economic growth slows mostly affected by trade tension between US and China. Indonesia as a small open economy is vulnerable influenced by the global economic condition. Moreover, the vulnerability amplified particularly aftermath of the 2008-2009 Global Financial Crisis (GFC). The GFC raised awareness concerning the importance of maintaining financial system stability (FSS). The FSS has systemic risks dealing with the external shock effects to the domestic economy. In addition, Covid-19 Pandemic had threatened the global economics including the Indonesia’s FSS, as shown through the IMF data (2020) in Figure I.1. Figure I.1 The “Black Swan” Crisis Events -15 -10 -5 0 5 10 15 1990 91 92 93 94 95 96 97 98 99 2000 01 02 03 04 05 06 07 08 09 2010 11 12 13 14 15 16 17 18 19 2020 2021 2022 2023* Indonesia ASEAN-5 Advance Econ. EM & Dev. Econ. 1997/98: Asian Financial Crisis 2008/09: Global Financial Crisis GDP Growth (%, yoy) 2018/19: Trade War 2020: Covid-19 2016: Brexit 1992: ERM Crisis 1994/95: Mexican Crisis 2001: Dot.com Bubble source: IMF Data, WEO(2023) 2 Assessment to a structural breakdown using the Wald test revealed that statistically approved GDP structural breakdown in Q2 2020 (see Figure I.2). Figure I.2 The Indonesia GDP Growth Table I.1 shows the least square estimation method of simple GDP growth model which can assist us to assess the significance of dependent variables. They are statistically significant as a result. Table I-1 The Least Square Estimation Result Dependent Var. GDPg Independent Var. Coeff. Std.Err.