Financial Instability

Financial instability refers to the condition where the financial system, comprising institutions, markets, and instruments, faces irregular fluctuations that can lead to systemic issues. It often implies a disruption in the services provided by financial intermediaries, causing significant stress to economic performance and market confidence. This instability can be initiated by various factors like excessive risk-taking, lack of regulation, market bubbles, or economic shocks. For individuals and businesses, financial instability may lead to difficulty in securing loans, increased borrowing costs, and a decrease in investments. Understanding financial instability is crucial for creating robust financial policies and risk management strategies to safeguard economic stability.