Financial stability
Warwick Business School
wbs.ac.uk
Financial stability is something that most of us take for granted – until we don’t have it!
Financial instability is bad for the economy as a whole, but if your bank is in distress and you can’t access your money, or if the payment system stops working and you are sitting in a car park unable to access your new house because the money hasn’t gone through, it can can also create personal stress directly. One of the consequences of raising interest rates sharply to control inflation, has been increased pressure on the financial system. In a spectacular failure of risk management, several US banks went bust in March 2023, having made losses on longer-term bonds whose value varies inversely with interest rates. For unrelated reasons, but at the same time, Credit Suisse - one of the largest international banks in the world - also failed. In both cases the response of the authorities was not as expected.
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