At the ECB, we have defined financial stability as “a condition in which the financial system – comprising financial intermediaries, markets and market infrastructures – is capable of withstanding shocks and the unravelling of financial imbalances in the financial intermediation process which are severe enough to significantly impair the allocation of savings to profitable investment opportunities”.
5 It is clear from this definition that the objective of promoting and safeguarding financial stability cannot be defined in terms of a single indicator in a reasonably straightforward manner, as can be done with the price stability objective. Indeed, it has been argued that it may be preferable or more useful to define financial stability as absence of instability”.