I would like to emphasise that adequate risk management by banks can reduce but not eliminate the negative effects of macro-economic instability on the soundness of financial systems. But it is evident that a sound financial sector is an important precondition for BIS Review 79/1997  -3-  macroeconomic stability.
For instance, when macro-economic stabilisation calls for monetary tightening, concerns about the effect of higher interest rates on the loan portfolios of weak banks may delay policy action. In Mexico, this delay contributed to a sudden reversal of capital flows and a deep recession in 1995.