Globalisation which has had such an impact on the world's economy has not left financial systems unaffected. The changes both to their design and operation have brought benefits such as increased efficiency, cost reduction and stronger competition. At the same time, due to the scale and scope of the changes, financial systems have become more fragile, fostering the feeling of insecurity amongst their participants. Therefore the issue of financial stability - perceived as a prerequisite for smooth functioning of any economy - has been gaining increasingly more attention.

The present paper discusses the characteristics a stable financial system should possess, along with the ways to achieve them. The publication will appear in two parts, in the current (March) and April 2002 issues of Bank i Kredyt. Part 1 deals with the notion and significance of financial stability, listing, as mentioned above, the desirable qualities of a stable financial system as well as potential sources of destabilisation.