In the first two stages of the international financial turmoil, the Romanian banking system was not directly hit by its ripple effects. The aim of this paper is to gauge the potential impact of risks induced by the likely worsening of the domestic economic environment on the Romanian banking sector stability as a result of the third wave of the global financial crisis. The analysis is centered upon an econometric model which quantifies the rating downgrade probability in respect of credit institutions. The results derived from the model pinpoint that, in 2009, even though the majority of Romanian banking system's assets is associated with a small rating downgrade probability, the expected dynamics of the weight of nonperforming banking assets slipped into positive territory towards the end of the period under review. Estimations for end-2010 prepared under a multifactor hypothetic scenario of a hard landing of the Romanian economy in 2009 show that the credit institutions' performance might turn bad enough so that approximately 12 percent of banking system assets could be subject to rating downgrades.
