In short, although financial stability and monetary policy tools are used independently, they are nevertheless interconnected via their respective effects on the macroeconomy. So let me take a few minutes to discuss this topic in more detail. Financial stability is essential for monetary policy in the United States to achieve its congressionally mandated goals of maximum employment and price stability.
Jurisdictions that have regulatory gaps are more prone to fraudulent practices. Regulators must guide the evolution of financial institutions by favouring stability-enhancing and discouraging instability-augmenting institutions and practices. Regulators often have to act as bomb disposal experts when confronted with a potential risk of financial instability.