Abstract: Maintaining financial stability has become one of the key issues in China’s macroeconomic management. According to the connotation of financial stability, this paper believes that the assessment of financial stability must take into account the principles of“performance”and“ability”. It establishes a financial stability index which contains 16 basic indicators in terms of China’s reality and the availability of data. On this basis, it employs the principal component analysis method to carry out a quantified measurement and prediction of the conditions of financial stability from 1994 to 2013. The results indicate that in the past 20 years, China’s financial stability has been significantly improved. Financial stability depends on the stability of the banking system to some extent. The reform in the financial supervision system, the joint-stock system reform of state-owned commercial banks and their going public, and the reform of non-tradable shares in shock market all played an active role in improving China’s financial stability. A further validity analysis and sensitivity test on the measurement result indicate that the index established in this paper can acutely characterize the changing trend of China’s financial stability and that it can be sensitive to show the impacts of the internal and external factors on China’s financial stability. This index can also provide some important information for people to understand the determinants of China’s financial stability, so it has a strong value in policy application.

Key words: inancial stability; indicator system; index; quantified measurement; sensitivity test