Page 4 - ECONOMIC LEARNING MEDIA AND ITC

6. Financial system stability
Refers to the condition in which the financial system of a country or region operates well
and is not affected by external or internal turmoil that could disrupt the smooth running
of financial activities. This includes various financial institutions and markets, such as
banks, stock markets, bond markets, and non-bank financial institutions.

The following are several important components of financial system stability:

1) Financial Institution Stability: Financial institutions, such as banks and other financial
institutions, must have adequate financial strength and good governance. This is
important to prevent the risk of institutional failure, which could disrupt the stability of
the financial system.
2) Financial Market Stability: Financial markets, including stock markets, bond markets,
and foreign exchange markets, must function efficiently and transparently. The existence
of adequate liquidity and prices that reflect correct information are important factors for
financial market stability.
3) Effective Supervision and Regulation: A strong and effective system of supervision and
regulation from financial authorities and central banks is key to ensuring that financial
institutions and markets operate properly. Strict regulations help prevent unwanted risks
and ensure transparency and accountability.
4) Risk Management: Good risk management throughout the financial system is key to
preventing a financial crisis. This includes managing credit risk, market risk and
operational risk.
5) Crisis Preparedness: The financial system must have mechanisms and tools to overcome
a financial crisis if it occurs. This includes the existence of emergency funds, intervention
policies, and deposit guarantee mechanisms.
6) Preventing and Handling Financial Crises: Financial authorities and central banks must
have a clear strategy to prevent and deal with financial crises if they occur. This could
involve measures such as providing emergency liquidity and restructuring financial
institutions threatened with bankruptcy.
7) International Cooperation: In the era of globalization, financial system stability not only
depends on domestic factors, but is also related to global economic and financial