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The Theory and Practice of Financial Stability
Andrew Crockett Essays in International Finance No. 203
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| The integration of international capital markets and the globalization of major financial institutions have made the objective of maintaining financial stability increasingly important and complex. The network of financial relationships linking the main financial firms and markets creates an enhanced potential for difficulties arising in a single firm, market, or payment system to spread elsewhere in the system. At the same time, price movements in one asset market quickly spread to other markets in different geographical areas or trading segments. This essay reviews the various reasons advanced to explain why financial markets should be particularly prone to market failure or other forms of instability and asks how official actions can make markets work better or otherwise reduce their potential for instability. Particular stress is given to the international aspects of instability. |
