The Link between Financial System and Economics: Functions of the Financial System, Financial Crises, and Policy Implications

Abstract

Financial system plays a key role in fostering economic growth by efficiently channelling the funds to investments. However, financial system is also considered as the source of instability especially during crisis periods. How to redesign financial system globally and nationally in order to achieve and maintain global financial stability without sacrificing the benefits of it is one of the priority issues for policy makers. This study surveys the benefits obtained from and damages caused by the financial system. This survey further overviews policy implications and suggestions about improving the financial system which help achieve long-term global financial stability.