When you hear the term “financial stability,” words like freedom, retirement and security may readily come to mind. We usually think of financial stability as a synonym or prerequisite for financial independence. When the Bank of Jamaica (BOJ) refers to financial stability, however, it is referring to financial system stability.
Financial system stability is a state in which the components of the financial system – that is, financial institutions, financial markets and payment systems – are all resilient to economic shocks. Such resilience facilitates the continued and consistent intermediation of funds and arrangement of payments by financial institutions, thereby promoting economic activity.
In other words, financial stability can be described as the proper, safe and efficient functioning of the financial system in its promotion of real economic activity.
During the different stages of our lives, financial stability is relevant to us and how we live each day.
A stable financial system is one in which financial institutions are adhering to best practices necessary to ensure that your investment in your first car, first home or first child is protected.
Similarly, if you are focused on retirement, being assured that your pension will be available when you get to the age of retirement is a function of a stable financial system.