Financial Stability

Overview

It is only in the last decade or so that central banks around the world have begun to make financial stability an explicit goal or to measure the stability of their financial systems. This site is designed to give researchers, policymakers, and interested readers an overview of the topic along with resources that will help you stay abreast of developments in the area. Resources include:

Defining It. Financial stability has been the subject of many articles, speeches, conferences, and books, and yet its definition remains somewhat elusive. The term itself did not come into common usage much before 1996, when the Bank of England launched its Financial Stability Review. Most people, when pressed, would probably define it as the absence of financial instability or as the lack of systemic financial crises or panics. Perhaps the key point is systemic focus, in that the concern is not with the stability of a particular bank, firm, or household, but the financial system as a whole.  (Read more)

Related Articles and Speeches from around the Fed

Many recent speeches by Federal Reserve officials have touched on the subject, and the Federal Reserve Bank of Cleveland has devoted an annual report essay and several working papers and Economic Commentaries to the topic.

  • November 17, 2008
  • Reconsidering the Application of the Holder in Due Course Rule to Home Mortgage Notes
  • In this paper we investigate the history of negotiable instruments and the holder in due course rule and contrast their function and consequences in the 1700s with their function and consequences today. We explain how the holder in due course rule works and identify ways in which the rule’s application is limited in some consumer transactions. In particular, we focus on laws limiting application of the rule to some home mortgage loans. We investigate Lord Mansfield’s original justification for the rule as a money substitute, the lack of explicit justification of the rule by the drafters of the Uniform Commercial Code in the 1950s, the contemporary justification of the rule as a means of increasing the availability and decreasing the cost of credit, and the concerns of legislators and regulators about lack of consumer knowledge, bargaining power, and financial resources which caused them to limit the application of the holder in due course rule to some consumer transactions. We conclude that changes in policy justification, parties to negotiable instruments and the structure of the home mortgage market call for a reconsideration of the continuing appropriateness of holder in due course protection for assignees of home mortgage notes. We suggest further analysis based on economic theory and review of empirical research in order to formulate policy recommendations. (PDF)
  • August 01, 2008
  • Identifying and Resolving Financial Crises: A Conference Overview
  • Financial crises remain a recurring problem despite, or perhaps, as some suggest, because of, extensive innovation in capital markets over the past several decades. Crisis interventions are fraught with trade-offs: What are the costs of doing nothing? What is the probability that markets will seize up? Are there viable alternatives? Will the intervention make further crises more likely? The Federal Reserve Bank of Cleveland and the FDIC sponsored a conference in April 2008 to debate and exchange ideas on these issues. The following document summarizes and ties together the contributions presented. (PDF)
  • June 01, 2008
  • Central Banks and Crisis Management
  • Fostering financial stability is a key role of a central bank. The Federal Reserve Bank of Cleveland's 2007 Annual Report reviews lessons from past financial crises that may help guide policymakers as they respond to future challenges. (PDF)
  • December 01, 2005
  • Umbrella Supervision and the Role of the Central Bank
  • Deregulation and financial consolidation have led to the development of financial holding companies-allowing commercial banking, insurance, investment banking, and other financial activities to be conducted under the same corporate umbrella-and the Federal Reserve has been named supervisor of the consolidated enterprise. This Policy Discussion Paper will show that there likely are economies of scope between the Fed's inherent central-banking responsibilities and those of an umbrella supervisor and that these duel roles benefit both the Fed and functional regulators. (PDF)

See all related articles

Financial Stability Reports

A variety of countries and international organizations produce financial stability reports. Links to many of them can be found on our financial stability reports page.

(See the full list of countries and find their reports.)