financial stability and systemic risk

Financial stability refers to the condition in which a financial system functions smoothly, without disruptions or crises, and provides a reliable and efficient flow of funds to support economic activities. It entails the ability of financial institutions and markets to withstand external shocks and maintain sustainable growth. Systemic risk refers to the risk that the failure of one financial institution or a disruption in the financial system can trigger a widespread crisis, impacting the stability and functioning of the entire system. It arises when risks become interconnected, amplifying the negative effects across institutions and markets, potentially causing significant economic damage.

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