The importance of financial stability is better understood by the financial crises that are experienced and the economic and social costs caused by these crises. Financial stability refers to the financial system’s realibility to shocks. One of the clearest indicators that there is a sustainable confidence in the financial system is financial stability. The failure of financial institutions to function, the persistent mobility in financial asset prices should be understood as financial instability. Why is financial stability important? Firstly, financial stability helps the economy by increasing the functioning of monetary policies, by eliminating financial risks. It prevents the system from being crashed. Most importantly, economies with lower savings rate will be able to attract investors to the extent they can achieve financial stability and will be able to find the capital needed for their investments. They will also not face financial fragility that will force the economy.
Global or national factors can have an impact on financial stability. Even if there is no financial problem in the country, a global problem may cause the country to go to financial instability, as seen in the global financial crisis. Macroeconomic problems in the country, budget deficit, current account deficit, insufficient financial regulation can also be the cause of financial instability. Financial instability does not need to be based on economic reason, and national or global political problems can lead to instability. Political restraints between countries can be the most important reason for financial instability. Global economy integration can be a challenge for such global problems and economies, as well as being good for the country economy.
A stable financial structure in globalizing economic markets is indispensable for every aspect of the economy. Efforts to ensure and maintain financial stability are crucial so that adverse situations that may arise in financial markets can be managed well and their effects can be limited without reaching dangerous dimensions. Macro prudential policies are used to ensure and stabilize financial stability. The use of these policies for regulating and supervising the financial system has increased since the year 2000. It is important that the policies used are country-specific. When designing policies to be implemented against financial instability, it should not be forgotten that the basic elements such as the structure and depth of the financial system, the nature of the capital movements and the state of economic conjuncture must be taken into consideration.