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Financial stability is a characteristic of a financial system that reduces financial imbalances brought on by substantial unfavorable events or endogenous financial market fluctuations.
What is financial stability?
Financial stability is a characteristic of a financial system that reduces financial imbalances brought on by substantial unfavorable events or endogenous financial market fluctuations. When an economy's systems for valuing, allocating, and managing financial risks (credit, liquidity, counterparty, market, etc.) are operating well enough to support the health of the economy, the economy is said to be in a state of financial stability.
Financial stability is the state in which there is confidence in the seamless operation of important financial institutions and markets within the economy and the financial intermediation process.
The likelihood of default for each individual institution, the extent of the loss in the event of default, and the "contagious" nature of defaults among institutions as a result of their interconnection are combined in this. There are numerous more markers of excellent financial health.
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