Factors Affecting the Financial Stability

Factors affecting the stability financial system
Stability of financial system :
Introduction : financial stability can be defined as a condition in which the financial system – comprising of financial intermediaries, markets and market in structures – is capabilities with understanding shocks ,there by reducing the likelihood of disruptions in the financial intermediation process which are severe enough to significantly impair the allocation of savings to profitable investment opportunities. financial system stability(FSS) does not in fact have any standard international definition.
Factors affecting the stability financial system
There are various factors which affect the stability of financial system are as follows * social factors * legal factors * economic factors * political factors * technological factors

social factors : the social factors of a nation determine the value system of the society which, in turn affects the functioning of the financial system. Sociological factors such as costs structure, customs and conventions, cultural heritage, view toward wealth and income and scientific methods, respect for seniority ,mobility of labor, etc.,have far- reaching impact on the financial system. these factors determine the work culture and mobility of labor, workgroups, etc. thus, social factor includes living pattern of a nation. It decades the population composition of the country .thus financial system is highly influenced by these factors. legal factors : these can be simply described as the laws and regulations that financial system has to follow. It includes : i. taxation system ii. SEZ and EPZ concept iii. Regulatory system iv. International laws and regulations,etc.

Non-compliance of above regulations may impose fines and penalties on financial system. i. Trade business cycles ii. Monetary policy iii. Fiscal policy iv. Currency exchange rates v. Corporate activity vi. Unemployment rates vii. Level of capital formation.3

economic factors: these refers to aggregate of the nature of economic system of the country, the structural anatomy of the economy to economic policies of the government, the organization of the capital market, the nature of factor endowment .business cycles,the socio-economic infrastructure,etc. economic factors affect spending through an economy and measures the cumulative effects of that spending. The impact region is determined by of multiple countries. Economic factors include: i. Type of economy ii. Inflation rate political factors: as philosophy of political parties, ideology of government or party in power, nature, and extent of bureaucracy influence of primary the political factors refers the policy of the political party in power such groups, political stability in the country, foreign policy defense and military policy, image of the country and its leaders in and outside the country.
Technological factors: the financial system in a country is greatly influenced by the technological development. The technological adopted by the financial system determines the type and quality of goods services to be produced and the type and quality of equipment to be used.