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About financial stability

Past developments in financial markets have shown that the traditional exercise of financial market supervision, focused on the stability of individual financial institutions, is insufficient for ensuring the stability of the financial system as a whole. This is because such supervision cannot comprehensively address the combined, common behaviour of financial institutions, their shared exposure to risks, the linkage between institutions, and possible cross-border effects of national measures.

Even though some systemic risks were identified, the responsibility of authorities for mitigating these risks was not clearly defined. The mere identification of a risk proved insufficient for ensuring their mitigation. This recognition has led to the creation of a macroprudential policy concept in which the analysis of risks to financial stability is complemented with the powers and responsibility of authorities to take measures to mitigate these risks.

Macroprudential policy can, therefore, be defined as an ongoing process of identifying, monitoring, assessing and mitigating risks that pose a threat to financial stability. By preventing and mitigating these risks, the policy contributes to strengthening the financial system’s resilience and to limiting the growth of systemic risks in the interest of protecting the stability of the financial system as a whole. Macroprudential policy can thus be seen, alongside supervision focused on individual financial institutions, as one of the main pillars for maintaining a robust and stable financial system. The focus of this policy is, by definition, not confined to the banking sector, but encompasses the entire financial sector.

Further information is available in the answers to frequently asked questions: