Essays on financial stability: old and new risk sources

European Central Bank (ECB) defines financial stability1 as ”a condition in which the financial system – which comprises financial intermediaries, markets and market infrastructures – can withstand shocks and unravel financial imbalances. This mitigates the prospect of disruptions in the financial intermediation process that are severe enough to impact real economic activity adversely.” Practically speaking, stability is a balance among the agents participating in the financial environment: market par- ticipants weave relationships, creating dependencies and interconnec- tions. The risks and vulnerabilities affecting one agent can impact many others, generating a cascade effect that propagates and might throw the system out of balance. Hence it is essential to identify all the potential sources of risk in the spirit that if we can recognize the form and assess the severity, we can cope with specific risks and prevent the system from unbalancing.