What is financial instability?

Financial instability refers to a situation where the financial system experiences significant disruptions, leading to a loss of confidence among investors, consumers, and institutions. This can manifest through volatile markets, banking crises, or sudden shifts in asset prices, resulting in adverse economic consequences. Factors contributing to financial instability include excessive debt, inadequate regulatory frameworks, and external shocks. Ultimately, it can hinder economic growth and lead to recessions or prolonged periods of economic uncertainty.