What is financial stability?

Financial stability is about building a financial system that can function in good times and bad, and can absorb all the good and bad things that happen in the U.S. economy at any moment; it isn't about preventing failure or stopping people or businesses from making or losing money. It is just helping to create conditions where the system keeps working effectively even with such events.

The American economy is a dynamic, growing economy full of businesses that are starting, expanding, succeeding, as well as failing: standard functions of the normal business cycle. A financial system is considered stable when financial institutions--banks, savings and loans, and other financial product and service pro­viders--and financial markets are able to provide households, commu­nities, and businesses with the resources, services, and products they need to invest, grow, and participate in a well-functioning economy.

Financial stability is a financial system that meets the needs of average families and businesses to borrow money to buy a house or a car, or to save for retirement or an education. Likewise, businesses need to borrow money to expand, build factories, hire new workers, and make payroll. All these things require a functioning financial system that works best when most people don't even think about it very much. Consumers and businesses just know that they can finance large expenses like the construction of a factory, or that their savings are safe, or that they'll be able to get short-term loans to make payroll.

The Federal Reserve works to identify threats to financial stability and develop effective policies to address those threats through its Division of Financial Stability. This division monitors financial markets, institutions, and structures and also conducts research on financial stability issues.

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Last Update: May 11, 2018