Financial instability refers to a situation where the financial system experiences significant disruptions, leading to a lack of confidence among investors and consumers. This can result from various factors, including economic downturns, high levels of debt, or sudden changes in market conditions. When financial instability occurs, it can lead to decreased investment, increased unemployment, and a slowdown in economic growth. The consequences of financial instability can be widespread, affecting individuals, businesses, and governments. For example, during a financial crisis, such as the 2008 financial crisis, banks may face insolvency, and stock markets can plummet. This instability can create a ripple effect, impacting the overall economy and leading to long-term challenges for recovery.