What Is Financial Stability
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A financial system is considered stable when banks, other lenders, and financial markets are able to provide households, communities, and businesses with the financing they need to invest, grow, and participate in a well-functioning economy—and can do so without making the system more vulnerable to sharp downturns. In contrast, in an unstable system, an economic shock is likely to have much larger effects, disrupting the flow of credit and leading to larger-than-expected declines in employment and economic activity.
The resources and services provided by the financial system include:
- loans and lines of credit to businesses and households, such as mortgages and credit cards;
- checking accounts, savings accounts, and retirement accounts, among many other savings products; and
- securities underwriting, brokerage services, cash management, and other critical offerings of a sophisticated financial system.
Key participants in the U.S. and global financial system include the lenders and savers who are matched up with borrowers and spenders through various markets and intermediaries. The Federal Reserve monitors and assesses the interactions among these participants and the financial vulnerabilities that may be developing as a result. This work informs Federal Reserve actions to promote the resilience of the financial system.
The Federal Reserve works with other domestic agencies directly and through the Financial Stability Oversight Council (FSOC) to monitor risks to financial stability and to undertake supervisory and regulatory efforts to mitigate the risks and consequences of financial instability.
