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Financial stability as a policy objective

Financial stability as a policy objective Explains why financial stability is important for official policy: its disruption leads to huge economic costs. Analyses why the involvement of the public sector is necessary to ensure stability; market self‐interest is not sufficient because of externalities, meaning that individual firms’ decisions take into account only their own costs and benefits. Outlines the kinds of action needed: ex ante, the authorities can influence the robust shock‐absorbing capacity of the system by levering capital and liquidity buffers, and oversee the financial infrastructure of payment, clearing and settlement systems. Indicates the balance that has to be made between system safety and the cost of buffers or system improvements. Goes on to the authorities’ influence over market discipline, and to the need for crisis management on certain occasions. Stresses also the importance of market integrity and concludes with the international dimension to financial stability policy. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Financial Crime Emerald Publishing

Financial stability as a policy objective

Journal of Financial Crime , Volume 11 (4): 7 – Oct 1, 2004

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Publisher
Emerald Publishing
Copyright
Copyright © 2004 Emerald Group Publishing Limited. All rights reserved.
ISSN
1359-0790
DOI
10.1108/13590790410809310
Publisher site
See Article on Publisher Site

Abstract

Explains why financial stability is important for official policy: its disruption leads to huge economic costs. Analyses why the involvement of the public sector is necessary to ensure stability; market self‐interest is not sufficient because of externalities, meaning that individual firms’ decisions take into account only their own costs and benefits. Outlines the kinds of action needed: ex ante, the authorities can influence the robust shock‐absorbing capacity of the system by levering capital and liquidity buffers, and oversee the financial infrastructure of payment, clearing and settlement systems. Indicates the balance that has to be made between system safety and the cost of buffers or system improvements. Goes on to the authorities’ influence over market discipline, and to the need for crisis management on certain occasions. Stresses also the importance of market integrity and concludes with the international dimension to financial stability policy.

Journal

Journal of Financial CrimeEmerald Publishing

Published: Oct 1, 2004

Keywords: Financial control; United Kingdom

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