Defining Financial Stability and a Framework for Safeguarding It
Financial stability is as important a policy objective as maintaining monetary stability if economic growth and stability are to be achieved and sustained. A prerequisite for more effective official oversight is the development and implementation of a better framework for assessing the ability of the financial system to perform its key economic functions, i.e. matching needs of savers and investors, providing transactions and payments services; risk pricing, spreading, sharing, and management; and the production, processing, and monitoring of information. However, the ultimate goal is sustained economic growth, stability, and prosperity. The purpose of this paper is twofold: first, to discuss a definition of financial stability and a framework for policy analysis more closely aligned with economic processes and efficiency; and second, to examine the implications and challenges for assessing systemic risk and the safeguarding of financial-system stability.
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