Abstract
A number of developments in recent years have put the concept of financial system stability at the top of the agenda of economic policymakers. There is no clear-cut definition of what constitutes financial instability. However, a “stable financial system” has been generally defined as one in which there is a high degree of confidence that the institutions can continue to perform their contractual obligations, intermediation, and wealth management services without interruptions and outside assistance, and participants can confidently transact in the key markets at prices that reflect fundamental forces and that do not vary substantially over short periods when there have been no changes in fundamentals (see Crockett, 1997b and 1997c).1
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