<abstract xmlns="http://www.w3.org/1999/xhtml"><p> There is probably no single economic concept that has attracted more attention and intrigued scientific and professional circles than financial stability. For over a decade now that have been efforts to establish the starting point in explaining this condition or characteristic of the financial system since some find that the key to defining financial stability lies in stability and others argue in favour of the opposite, instability. Unfortunately, no agreement has been reached on a universal definition that would be widely accepted at the international level. Consequently, this gave rise to open discussions on systemic risk, creating a framework for preserving financial stability, and the role of central banks in this process. This article analyses the results achieved in the development of a theoretical concept of financial stability and its practical implementation. A consensus has been reached on the necessity of removing rigid barriers between macro and prudential policies and on the necessity of their coordinated actions. The primary objectives of monetary and fiscal stability have been shifted towards preserving financial stability. The isolated macroprudential principle rightfully got the epithet of an archaic approach. Coordinated micro and macroprudential policies have definitely prevailed and become reality in many countries, including Montenegro. Created institutional frameworks for safeguarding financial stability at all levels - national, Pan-European and global - represent a challenge for further comparative studies.</p></abstract>

There is probably no single economic concept that has attracted more attention and intrigued scientific and professional circles than financial stability. For over a decade now that have been efforts to establish the starting point in explaining this condition or characteristic of the financial system since some find that the key to defining financial stability lies in stability and others argue in favour of the opposite, instability. Unfortunately, no agreement has been reached on a universal definition that would be widely accepted at the international level. Consequently, this gave rise to open discussions on systemic risk, creating a framework for preserving financial stability, and the role of central banks in this process. This article analyses the results achieved in the development of a theoretical concept of financial stability and its practical implementation. A consensus has been reached on the necessity of removing rigid barriers between macro and prudential policies and on the necessity of their coordinated actions. The primary objectives of monetary and fiscal stability have been shifted towards preserving financial stability. The isolated macroprudential principle rightfully got the epithet of an archaic approach. Coordinated micro and macroprudential policies have definitely prevailed and become reality in many countries, including Montenegro. Created institutional frameworks for safeguarding financial stability at all levels - national, Pan-European and global - represent a challenge for further comparative studies.

Challenges to the Implementation of a New Framework for Safeguarding Financial Stability

Journal of Central Banking Theory and Practice

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

There is probably no single economic concept that has attracted more attention and intrigued scientific and professional circles than financial stability. For...

Challenges to the Implementation of a New Framework for Safeguarding Financial Stability

Published Online: Sep 25, 2014

Page range: 19 - 52

Received: Jul 17, 2014

Accepted: Aug 27, 2014

DOI: https://doi.org/10.2478/jcbtp-2014-0014

Keywords
financial stability, systemic risk, framework for safeguarding financial stability, microprudential and macroprudential, central bank, monetary policy

© Central Bank of Montenegro

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Challenges to the Implementation of a New Framework for Safeguarding Financial Stability

Published Online: Sep 25, 2014

Page range: 19 - 52

Received: Jul 17, 2014

Accepted: Aug 27, 2014

DOI: https://doi.org/10.2478/jcbtp-2014-0014

Keywordsfinancial stability, systemic risk, framework for safeguarding financial stability, microprudential and macroprudential, central bank, monetary policy

© Central Bank of Montenegro

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Keywords
financial stability, systemic risk, framework for safeguarding financial stability, microprudential and macroprudential, central bank, monetary policy