DEFINITION OF FINANCIAL SYSTEM STABILITY

Financial system stability (SSK) actually don't have the raw definition which has been accepted internationally. Therefore, it appears some definition of SSK essentially says that a financial system entered the stage of unstable at the time of the system have been jeopardized and hamper economic activity. Below are some definitions quoted SSK taken from various sources:

A stable financial system is able to allocate funding sources and absorbing shock (shock) that occur so as to prevent disruption to the activities of the real sector and the financial system. '

A stable financial system is a financial system that is resistant to a wide range of economic disorder so that it remains capable of performing the function, carry out the payment intermediation and risk spreads are good. 

The stability of the financial system is a condition in which the economic mechanisms in pricing, allocation of funds and the good functioning of the risk management and supports economic growth. '

The meaning of the stability of the financial system can be understood by doing research on the factors that may lead to instability in the financial sector. The instability of the financial system can be triggered by a variety of causes and turmoil. It is generally a combination of market failure, either because of structural factors as well as behavior. The failure of the market itself can be sourced from external (International) and internal (domestic). The risks that often accompany the activities in the financial system, among others, credit risk, liquidity risk, market risk and operational risk.

The growing trend of globalization of the financial sector that is supported by the development of technology is causing the financial system became increasingly integrated without pause time and borders. In addition, the financial product innovation increasingly dynamic and vary with the complexity that gets high. In addition to these developments can lead to trigger sources of instability of the financial system was increasing and increasingly diverse, can also lead to increasingly difficult overcoming the instability.

Identification of the source of the instability of the financial system is generally more forward looking (looking forward). It is intended to find out the potential risks will arise and will affect the condition of the financial system in the future. On the basis of the results of the analysis carried out subsequent identification to how far the risk of potentially harmful, are becoming increasingly widespread and systemic in nature so it is able to paralyze the economy. 

THE IMPORTANCE OF THE STABILITY OF THE FINANCIAL SYSTEM

The financial system holds a very important role in the economy. As part of the economy, the financial system function to allocate the funds from experiencing a surplus to a deficit. When the financial system is unstable and not functioning efficiently, expenditure will not go well so as inhibit economic growth. Experience shows, the financial system is unstable, moreover if the resulted in the onset of the crisis, requiring a very high cost for the effort penyelamatannya.

A valuable lesson when Indonesia ever experienced the financial crisis year 1998, where at that time the cost of the crisis is very significant. In addition, it takes a long time to resurrect public confidence to the financial system. Crisis of 1998 is proving that the stability of the financial system is a very important aspect in establishing and maintaining a sustainable economy. The unstable financial systems tend to be vulnerable to various upheavals so interfere with the rotation of the wheels of the economy. In general it can be said that the instability of the financial system can lead to the onset of some unfavorable conditions such as:

The transmission of monetary policy does not function normally so that monetary policy becomes ineffective. The function of intermediary can not walk properly due to the improper allocation of funds so as inhibit economic growth.

Distrust of the public against the financial system will generally be followed by panicked behavior of investors to pull their funds so as to encourage the onset of difficulty liquidity.

The very high cost of the rescue to the financial system in the event of a systemic nature of the crisis.

On the basis of the above conditions, efforts to avoid or reduce the risk of the possibility of instability of the financial system is absolutely necessary, especially in order to avoid such great losses again.