21 Chapter II Literature Review This chapter focuses on some foundational idea as an underlying theory of the proposed research. II.1 Introduction This research attempts to find such an integrated (composite) indicator that can be used to capture the systemic risk or financial system vulnerability using NFABS in the national and region level. The need for a composite of indicators that can represent the performance of the financial system to facilitate the process of monitoring financial system stability. The composite indicator can be an early warning system (EWS) to detect a likelihood of the financial crisis. To develop a comprehensive understanding towards the finding of the composite indicator, some journal articles have been collected through Google Scholar and ProQuest, as well as the IMF occasional papers. Since early 2000s, the IMF had introduced the Balance Sheet Approach (BSA) framework to assess the Financial System Stability (FSS) and becomes a prominent institution to do internationally surveillance to the FSS. Here, some keywords that are used to search for relevant literatures are: Financial System Stability, Balance Sheet Approach, Integrated Indicator and Macroeconomics. The period of search is in the last twenty years, 2002-2019 including fundamental papers that discuss the BSA Theory and key/high impact literatures from earlier years. The selected papers are explored as representative of this research area. The selection is according to the citation index, papers that are more up to date, foundational papers, related papers, well-known journal papers, and an overview of recent papers. 22 Table II. 1 Focus of Discussion Focus of Discussion FSS 1 BSA 2 Macro 3 Articles: Composite Indicator √ √ Table II.1 illustrates the focus of discussion which are explored from the literature review. The composite indicator articles try to explore related to terms of FSS and BSA rather than Macroeconomic. Meanwhile, Table II.2 shows the institutional sector analysis, which leads to composite indicator. Based on IMF working paper as mentioned by Allen (2002), the objects of institutional sector analysis are the Banking (Other Depository Corporations/ODC), Non-Banking Financial Institutions (Other Financial Corporations/OFC), Government (Central/Regional), Corporations (Non-Financial Corporations/NFC), Households (HH), and the Rest of the World (ROW). Table II. 2 Institutional Sectors Analysis Institutional Sector Analysis Banking 4 NBFI 5 Govern 6 Corp 7 HH 8 ROW 9 Composit 10 Articles √ √ √ √ √ √ The scope of analysis in this research is as shown in Table II. 3, in which unit of analysis as a context that covers international, national, and regional level. Some articles discuss a case with cross country data. The others cover their country data and only two founded, Indonesia and Rusia at the regional level.