About financial stability
Financial stability is the ability of a financial system, i.e., financial institutions, markets, and market infrastructure, to withstand possible shocks and imbalances, thus reducing the likelihood of disruption of financial intermediation functions. The goal of financial stability is not the stability of a single financial institution but the stability of the entire financial system. Financial stability is a cornerstone for the sustainable development of an economy.
A financial system is considered stable when banks, other lenders, and financial markets can provide households and businesses with the financing they need to invest, grow, and participate in a well-functioning economy—and can do so without making the system more vulnerable to sharp downturns. In contrast, in an unstable system, an economic shock is likely to adversely impact the real economy, disrupting the flow of credit and leading to larger-than-expected declines in employment and economic activity.
In the event of financial instability, the financial system cannot provide the financial services that are crucial to the economy. Financial instability may occur if, for example, a large institution experiences difficulties. In addition, problems in a single institution can spread to the rest of the system because the institutions are closely interconnected via interbank exposures. Financial instability may also occur even though the individual institutions seem robust. The reason is that the overall behavior of the institutions can pose a risk to the entire financial system, i.e., a systemic risk.
Financial stability and its analysis are among the main tasks of central banks and financial sector regulators. The banking sector is the most important part of the financial system of Uzbekistan. For this reason, maintaining banking system stability is one of the main tasks of the Central Bank of Uzbekistan (CBU). The CBU monitors and assesses developments in the banking system and adopts measures to reduce the build-up of systemic risk and enhance the banking system’s resilience. The CBU publishes a Financial Stability Report twice a year, which analyzes and assesses the banking system’s stability and macro-financial vulnerabilities and risks. By publishing this report, the CBU intends to promote public awareness and increase the transparency and accountability of the CBU in this area.
