About Financial Stability
A stable financial system is one in which financial intermediaries, markets and market infrastructure facilitate the smooth flow of funds between savers and investors and, by doing so, help promote growth in economic activity. Conversely, financial instability is a material disruption to this intermediation process with potentially damaging implications for the real economy. From this perspective, the safeguarding of financial stability can be seen to be a forward-looking task – one that seeks to identify vulnerabilities within the financial system and, where possible, take mitigating action. Some of these vulnerabilities have a macroeconomic dimension, such as changes in the condition of household and corporate sector balance sheets, and developments in credit and asset markets, all of which have the potential to affect the level and distribution of financial risk within the economy. Other vulnerabilities relate to the way in which financial intermediaries and financial market participants price and manage their various risks. In addition, a resilient financial system is one in which there are well developed crisis management arrangements for handling distressed financial institutions in such a way that public confidence in the financial system will not be undermined.