Istota stabilności finansowej (The Nature of Financial Stability)

Abstract

Aim of this article is to provide a critical review of the financial stability definitions available in the literature and used by central banks in the EU. The author attempts to justify that there is no single, universally acceptable definition of financial stability and the ones present in the literature do not fully cover the nature of financial stability. The results of the analysis point out there is a need for a definition covering wider scope of issues. After identifying the shortcomings of the existing definitions (e.g. paying insufficient attention to the imbalances in asset prices), indicating the myriad of factors determining financial stability and comparing it with price stability, the author presents his own definition. It is a condition of the financial system, characterized by, among others, proper fulfilling of its functions, lack of systemic risk accumulation, high resistance to shocks (both internal and external) and lack of transferring (contagion) crisis impulses both within the system, a well as between the financial system and real economy. Further research should focus on operational dimension of the definition and ways of recognizing financial stability as an objective of macroprudential supervision.

Note: Downloadable document is in Polish.

Keywords: financial stability, macroprudential policy, central bank

JEL Classification: E58, G28