Financial system stability

The Bundesbank defines financial stability as the financial system’s ability to perform its key macroeconomic functions well, even in stress situations and during periods of structural adjustment. This embraces the efficient allocation of financial resources and risks as well as efficient payment and settlement processing. Ideally, a financial system is sufficiently robust to enable it to absorb financial and real economic shocks internally.

Disruptions to key functions of the financial system generally result in economic costs. Such disruptions are usually caused by financial crises and are often accompanied by a high number of insolvencies among banks and enterprises and a shortage of credit. Generally, they also have a negative impact on growth. The crisis can be passed on to other sectors of the economy and other countries via various transmission channels. The costs of risky behaviour may therefore, in certain circumstances, have to be borne by parties other than those that caused them.

More information about preventing financial crises.