the event of financial shocks, is implementation by the central bank the function of
lender of last resort. This tool is quite efficient in terms of short-term objectives of
maintaining financial stability: it provides confidence to the banking system and
prevents the spread of banking panic. However, in terms of long-term goals using of
this tool has the implicit hidden negative consequences. It distorts the market
mechanisms of co-ordination and is a source of the accumulation of the systemic risks
of financial instability in the banking system. Banks, knowing about existence of the
lender of last resort, degrade the credits standards for the increasing of profitability
(moral hazard problem). Therefore, banks themselves provoke increasing of the
probability of financial shocks. Thus, the short-term benefits of financial stability
generate high systemic risks of instability in a long-term period. This phenomenon
takes place in any situations in which the relations between market agents are similar
to the relations between an insurance company and its clients. In other words, when
the one side assuredly compensates unfavorable economic events in the life of other
side, this side gets a stimulus to take too high risk. This contradiction is the
intertemporal paradox of financial stability (or intertemporal financial stability trade-
off).
Prudential policy paradox. The measures of prudential policy for financial
stability providing imply some currency restrictions and certain strict requirements to
solvency and liquidity of banks. From the one side, these restrictions contribute in
absorption of possible shocks and reduce risks of financial instability, but from the
other side, they increase the alternative costs of banks on maintenance of liquidity and
lower their investment possibilities. Consequently, the market mechanisms to allocate
resources efficiently distorted. In the end, it leads to a decrease in the ability of banks
to generate revenue (that is, the future liquidity) without taking excessive risks. Essence
of prudential policy paradox consists in contradiction between stability and efficiency
or in contradiction between short-term and long-term liquidity of the banking system.
Price stability and financial stability paradox. The original aim of central bank
conventional economic tools that exist now to maintain financial stability (discount
rates of refinancing, reserves requirements, and open-market operations) was to ensure
price stability. The impact of these instruments on financial stability is indirect and
manifests itself with a certain lag. Their heavy use to maintain financial stability may
introduce distortions into the dynamics of prices and exchange rates. Thus, it makes
conflict with the aim of price stability maintenance. Because of that financial stability
is highly sensible to exogenous shocks - from natural catastrophes to the changes of
markets sentiments, - the active policy of central bank on financial stability
maintenance can become the source of price instability.
Paradox of indicators of macrofinancial stability. Unlike the clear price stability
indexes, there is no universal generally accepted quantitative macrofinancial stability
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