Financial System & Its Financial Stability

The events of the past few decades, particularly those in the 1990s, emphasized the significance of financial stability as a key challenge and a crucial goal for monetary authorities worldwide in their economic policies. Despite the focus and abundant scholarly literature on the topic, it is challenging to pinpoint a universally recognized concept of financial stability. Financial stability is defined by leading scholars and colleagues as a collection of decisions and policies that address macroeconomic, monetary, supervisory, and regulatory aspects of financial markets simultaneously. After conducting a study on financial stability, I can summarize it as the state in which the economy's mechanisms for evaluating, distributing, and managing financial risks operate well, leading to a strong economic performance.This notion suggests that the financial system can effectively perform three primary roles simultaneously. • Firstly, to effectively allocate economic resources throughout time. • Secondly, to precisely recognize and handle financial risks. • Thirdly, to calmly absorb unexpected events and disturbances from financial markets and the actual economy.