This paper gives a detailed description and analysis of financial instability theory and the systematic financial risk or financial crisis, establishes a Markoff switching state space model to depict the dynamic changes of financial instability. We use Gibbs sampling method to predict China's financial instability in ten months after the sample period. Sampling prediction results show that, at the end of 2013, the stability of the financial system is strengthened. And in the first half of 2014, China's financial instability will fluctuate slightly but will still be in a stable range. <<