In a narrower sense, the risk situation of a national financial system in terms of its risk-bearing capacity, namely how well it can absorb market imbalances and shocks. In this context, the risk situation is assessed on the basis of various pieces of information, mainly derived from supervisory findings. When assessing risk-bearing capacity, the main focus is on the earnings situation of the banking system, the capitalization and reserves of the individual institutions, and any interconnected structures and protection schemes that may be in place. – In a broader sense, the interplay of supply and demand on the global financial markets, free from disturbances of any kind, with the aim of allocating the supply of capital to the “best host” (to the most favorable allocation of scarce resources). – Financial market stability is a public good, the provision of which must be ensured by official institutions (the central banks or the supervisory authorities). In today’s society, a secure and smoothly running financial system is at least as important as a functioning transport system, health care system, communication and information system, legal system or education system. Indeed, it is undisputed that financial market stability is a prerequisite for the orderly functioning of all social systems. This is because disruptions in the financial system generally also affect the scale property of money. In all social systems, however, money is the reference point for all prices to be charged there. – There is also widespread agreement today that the maintenance of financial stability should not be assigned as a further objective of monetary policy. This must be and remain the task of a separate policy area, namely macroprudential supervision and, for the euro area, the European Systemic Risk Council. – See banking supervision, European, ESCB network for macroprudential research, specialized banking system, financial soundness indicators, financial accelerator, financial market, growth importance, financial stability, Financial Stability Forum, monetary functions, primary, good, public, market discipline, money-matters theorem, Murphy’s law, risk, systematic, risk profile, stability fund, European, systemic, financial market. – Cf. Deutsche Bundesbank Monthly Report of December 2004, pp. 48 et seq. (possible disruptions caused by credit derivatives), ECB Monthly Report of February 2005, pp. 64 et seq. ECB Annual Report 2004, pp. 118 et seq, ECB Monthly Report of September 2005, pp. 22 ff. (impact of loan securitization on financial stability), ECB Annual Report 2006, pp. 148 ff. (general; ECB activities), ECB Monthly Report of April 2008, pp. 87 ff. (EU regulations on financial stability; detailed presentation; many overviews), Financial Stability Report 2012, p. 87 (on macroprudential supervision in Germany), Deutsche Bundesbank Monthly Report of April 2013, pp. 41 ff. (macroprudential supervision in Germany: detailed presentation, important references in the notes).
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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
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