Crisis prevention

In a market economy, safeguarding financial stability begins at the level of the individual financial market participants. The disciplining effect of the market in particular encourages market players to act responsibly and to adopt effective individual risk management. A high degree of transparency and the availability of information at a low cost are important prerequisites if financial market prices are to develop their potential as an efficient steering mechanism, not least to counter the accumulation of excessive risks. Moreover, effective market discipline presupposes adequate institutional and regulatory policy frameworks. Central banks and government and regulatory authorities work closely together to develop the institutional framework for the financial system.

This framework should include effective banking and financial market supervision that, on the one hand, makes concrete demands such as minimum capital requirements and, on the other hand, checks that these regulations are observed. Another element of safeguarding the stability of the financial system is central bank oversight of payments and securities settlement systems.