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Definition of Financial Stability

Financial Stability Write For Us – Financial stability can be defined as “a state in which the financial system is not unstable.” It can also mean a state in which all three components of the financial system (financial institutions, financial markets, and financial infrastructure) are stable.

“The stability of financial institutions” refers to the state in which individual financial institutions are sufficiently reliable to adequately perform their financial intermediation role without the assistance of external institutions, including the government.

“Financial market stability” means a state in which there is no major interruption of market transactions, without a significant deviation in the prices of financial assets from fundamental economic indicators, which allows economic agents to obtain and manage funds with trust.

“Financial infrastructure stability” refers to a state in which the financial system is well structured to ensure the smooth functioning of market discipline, and the financial security system and the payment and settlement system function effectively.

Financial stability can be defined more broadly as “a state in which the financial system can facilitate real economic activity without impediment and is capable of absorbing financial imbalances resulting from disturbances.”

Why is Financial Stability Important?

Financial stability is an essential requirement not only for price stability, which is the objective of the central bank’s policy but also for the healthy development of the economy. Financial instability has a high cost for the economy since it increases the volatility of price variables in financial markets, and financial institutions or corporations can go bankrupt. In addition, economic development at such a time may be limited since it is difficult for economic agents to make rational decisions and the efficiency in resource allocation decreases.

Since the 1980s, many countries worldwide have benefited from the rapid growth of the financial industry through the progress of financial liberalization. At the same time, however, they also experienced periods of sharp economic slowdowns due to the high economic costs associated with financial instability or financial crises.

In this context, many countries began to pay close attention to financial stability in implementing their policies. Increasing attention is being paid to financial stability, as new factors have recently emerged that can cause economic instability, including strengthening financial sector linkages between countries and the explosion of complex financial instruments.

Financial Stability Council

The Financial Stability Board is the decision-making body of the MNB, established under the new Central Bank Law (Law CXXXIX of 2013 on Magyar Nemzeti Bank), and its competence includes, within the strategic framework determined by the Monetary Board, decision-making. – performance of the tasks mentioned in paragraphs (5) and (7) – (9) of Article 4.

The Financial Stability Board, within the scope of its powers:

  • Constantly monitor the stability of the financial intermediation system in general and of the financial markets to maintain the strength of the financial intermediation system in general,
  • Taking into account the risk factors that threaten the financial intermediation system as a whole,
  • Analyze the risks associated with certain types of entities or products or their distribution, which may pose a threat to the financial intermediation system as a whole,
  • Monitor the evolution of the international and European markets and the risks that may pose a threat to the stability of the financial intermediation system as a whole, and decide on the necessary measures within the strategic framework determined by the Monetary Board,
  • Discuss strategic, regulatory and risk issues that affect the financial intermediation system and, where appropriate, issue opinions.

Members of the Financial Stability Board

Gyorgy Matolbchi, Governor of the Ministry of National Security.

Marton Nagy, Deputy Governor for Monetary Policy and Credit Incentives.

Dr Mihai Patai, Deputy Governor for Statistics and Financial Infrastructure.

Laszlo Windisch, Deputy Governor for Supervision of Financial Institutions and Consumer Protection.

Brown Fömöter, CEO.

Chaba Kandrach, Executive Director of Supervision of Financial Institutions.

Aniko Sombati, Executive Director of Macroprudential Policy.

Chaba Somalia, Executive Director of Licensing and Compliance.

Overview of Financial Stability

The Financial Stability Unit promotes the sustainability of banking institutions in client countries through technical assistance programs (TA) and our joint Financial Sector Assessment Program (FSAP) with the International Monetary Fund (IMF). Our efforts tend to focus on helping to align the regulatory framework with international best practices and standards. Our work is also closely linked to global standards-setting bodies. One of our primary goals is to represent the perspectives and experiences of emerging markets and developing countries (EMDEs), which tend to be underrepresented in international forums. The division coordinates the World Bank’s interaction with the Financial Stability Board (FSB).

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