The word “prevention of failure” according to advance learner’s dictionary connotes taking proactive measures in stopping something ugly from happening. A stable banking system means that the banks are making adequate profits from authorized banking business to justify their investment and at the same time bank failures are kept at a minimum within the country. By minimum failures is meant the number of failures whose solution cost would not exceed what the supervisory authorities could consider tolerable. It is therefore important to emphasize that failure is not necessarily synonymous with instability in the banking system. As a matter of fact, technically insolvent banks are expected to be resolved as they are detected so that the cost of such resolutions would not escalate. Also, if bank failure is not contagious, then the banking industry could be considered stable. Generally, it is agreed that an efficient banking system is a pre-requisite for an efficient economy in view of the importance of the banking sector.
