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Knowledge Sharing Program

Financial Stability Monitoring Committee. Sita Ghimire ; Ashok Paudel ; Keshav Thapa ; Rajan Bikram Thapa and Hem Prasad Neupane. Knowledge Sharing Program. Quality Circle-B. 2068 Fagun 17 Wednesday. Prepared by. Financial Stability Monitoring Committee. Quality Circle-B.

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Knowledge Sharing Program

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  1. Financial Stability Monitoring Committee SitaGhimire; Ashok Paudel; KeshavThapa;RajanBikramThapaand Hem Prasad Neupane Knowledge Sharing Program Quality Circle-B 2068 Fagun 17 Wednesday Prepared by

  2. Financial Stability Monitoring Committee Quality Circle-B 2068 Fagun 17 Wednesday

  3. It has gained one of the core objectives of the central banks across the globemainly due to economic crises in different nature. Financial sector stability implies resilience of the financial system to internal and external shocks, be it economic, financial, political or otherwise. (NRB-SP) Quality Circle-B 2068 Fagun 17 Wednesday Financial Stability has become buzzword since last decade of twentieth century.

  4. Most of the central bank discharges this role by • establishing the required legal framework, • regulating and supervising key categories of financial institutions, • maintaining stability in key financial markets, • overseeing the payments and settlements system, • acting as lender of last resort and • regular surveillance of the entire financial system, including insurance and stock market activities Quality Circle-B 2068 Fagun 17 Wednesday

  5. The stability of the financial system, therefore, depends on several interdependent and interconnected factors, namely, • a stable macroeconomic environment, • well governed and sound financial institutions, • an efficient financial market, • sound prudential oversight and • a safe and reliable payments and settlement system. Quality Circle-B 2068 Fagun 17 Wednesday

  6. Establishment of a financial stability department/division/unit • Setting-up of cross-departmental committees Reliance on the existing organizational arrangements Quality Circle-B 2068 Fagun 17 Wednesday Approaches to the organization

  7. Financial Stability Board (FSB) • It is an international body • It was established after the 2009 G-20 London summit • As a successor to the Financial Stability Forum. Quality Circle-B 2068 Fagun 17 Wednesday Different names of Financial Stability Monitoring Committee (FSMC)

  8. The Financial Stability Unitin the Reserve Bank of India (2009). The two-tier institutional arrangement in the shape of Financial Stability Development Council (FSDC) and its Sub-Committee, for monitoring financial stability on an ongoing basis has been operationalized (2011). Quality Circle-B 2068 Fagun 17 Wednesday Different names of Financial Stability Monitoring Committee (FSMC)

  9. Financial Stability Oversight Council (US) • Financial System Stability Committee (FSSC-CBSL) • Macroeconomic Surveillance Department at Monetary Authority of Singapore. • Italian Financial Stability Safeguard Committee. • Financial Stability Committee at Central Bank of Brazil • Financial Stability Committee at Central Bank of Trinidad and Tobago Quality Circle-B 2068 Fagun 17 Wednesday Different names of Financial Stability Monitoring Committee (FSMC)

  10. Central Bank of Trinidad and Tobago • (i) Review early warning indicators of financial instability and external vulnerability, • (ii) Developments in financial institutions and markets, • (iii) Changes to the legal and regulatory framework; and • (iv) The impact of economic policies on financial stability. Quality Circle-B 2068 Fagun 17 Wednesday TOR of Financial Stability Monitoring Committee (FSMC)

  11. Reserve Bank of India • Conduct macro-prudential surveillance of the financial system on an ongoing basis; • Preparation of financial stability reports periodically; • Development of a data base of key variables which could impact financial stability in co-ordination with the supervisory wing of the Bank; • Development of a time series of a core set  of financial indicators; • Conduct of systemic  stress tests to assess resilience; and • Development of models for assessing financial stability in due course. Quality Circle-B 2068 Fagun 17 Wednesday TOR of Financial Stability Monitoring Committee (FSMC)

  12. Central Bank of Sri Lanka • Assess the risks and vulnerabilities that may lead to financial system instabilities or imbalances and to recommend measures and policies to mitigate them, to the Governor and the Monetary Board; • Monitor the financial system and to submit periodic reports to the Governor and the Monetary Board, recommending policies necessary to promote financial system stability; and • Prepare the Financial System Stability Review. Quality Circle-B 2068 Fagun 17 Wednesday TOR of Financial Stability Monitoring Committee (FSMC)

  13. Central Bank of Sri Lanka • Deputy Governor in charge of Financial System Stability as a Chairman • Deputy Governor, in charge of Price Stability; • Assistant Governor, in charge of Financial System Stability (Deputy Chairman); • Assistant Governor, in charge of Price Stability; • Assistant Governor, in charge of Payments and Settlements; • Director of Financial System Stability; • Director of Economic Research; • Director of Bank Supervision; • Director of Supervision of Non-Bank Financial Institutions; • Director of Payments and Settlements; contd. Quality Circle-B 2068 Fagun 17 Wednesday Members of Financial Stability Monitoring Committee (FSMC)

  14. Central Bank of Sri Lanka • Director of Information Technology; • Director of Domestic Operations; • Director of International Operations; • Superintendent of Public Debt; • Director of Statistics; • Controller of Exchange • Director of Financial Intelligence Unit; • Director of Policy Review & Monitoring as an observer and • Deputy Director, Financial System Stability as member secretary Quality Circle-B 2068 Fagun 17 Wednesday Members of Financial Stability Monitoring Committee (FSMC)

  15. Central Bank of Trinidad and Tobago • Governor (Chairman), • Deputy Governors (Research and Policy; and Operations), • Inspector of Financial Institutions, • Deputy Inspector of Financial Institutions, • Chief Economist, • Senior Manager, Banking Operations, and • Advisor, Office of the Governor. Quality Circle-B 2068 Fagun 17 Wednesday Members of Financial Stability Monitoring Committee (FSMC)

  16. US Financial Stability Oversight Council • It is a collaborative body. There are two types of members in the FSOC. • Voting members (for six years) and • Non-voting members (for two years) Quality Circle-B 2068 Fagun 17 Wednesday Members of Financial Stability Monitoring Committee (FSMC)

  17. US Financial Stability Oversight Council • Chaired by the Secretary of the Treasury • Experts of the federal financial regulators, • An insurance expert appointed by the President, and • State regulators Quality Circle-B 2068 Fagun 17 Wednesday Members of Financial Stability Monitoring Committee (FSMC)

  18. The Financial Stability Committee is chaired by the economy and finance minister GiulioTremonti in Italy Quality Circle-B 2068 Fagun 17 Wednesday Members of Financial Stability Monitoring Committee (FSMC)

  19. Analysis of Financial Soundness Indicators; Coordination with other regulators; Coordination with regulated institutions; Macro-prudential surveillance of the financial system Monitoring, evaluation, feedback and policy prescription for financial stability. Quality Circle-B 2068 Fagun 17 Wednesday Agenda for discussion at FSMC

  20. A committee in the name of “FINANCIAL STABILITY STRENGTHENING COMMITTEE” should be constituted • Senior Deputy Governor, as a chairperson • Deputy Governor, • Executive Directors of Research Department, B&FI Regulation Department, Supervision Departments, Foreign Exchange Management Department • Member secretary will be Director of Bank Supervision Department. • Hence, the secretariat of the committee will be at the Bank Supervision Department. Quality Circle-B 2068 Fagun 17 Wednesday Recommendation in Nepalese Perspective

  21. Terms of Reference of FSSC • Core responsibility of Financial Stability Strengthening Committee (FSSC) is to devise policies and make necessary recommendations to assess and maintain the financial system stability. Quality Circle-B 2068 Fagun 17 Wednesday Recommendation in Nepalese Perspective

  22. Terms of Reference of FSSC • Based on core responsibility; the specific Terms of Reference: • Discuss and analyze the report submitted by the FSU and suggest appropriate policy measures to overcome any seen or unforeseen but predictable instability in the financial system • Conduct macro-prudential surveillance • Review early warning signals that can cause financial instability and external vulnerability, • Assess the impact of economic policies in general and fiscal policy in particular on financial stability • Prepare the Financial Stability Review on half-yearly basis. Quality Circle-B 2068 Fagun 17 Wednesday Recommendation in Nepalese Perspective

  23. Financial Stability Unit (FSU) • To assist FSSC; a permanent structure of financial stability unit (FSU) should be setup at Bank Supervision Department. Full fledged 3-5 staffs will be allocated. FSU will also act as the secretariat of FSSC. Necessary information will be collected from the respective departments; and these departments are responsible to provide data/information on regular basis. • Why FSU? • The cost of instability is more than establishing the FSU. Quality Circle-B 2068 Fagun 17 Wednesday Recommendation in Nepalese Perspective

  24. ToR of Financial Stability Unit (FSU) • review global, regional and domestic financial sector developments; • prepare financial soundness indicators to identify probable factor responsible for upcoming instability; • compile macro-prudential data and prepare Financial Stability Report (FSR) Quality Circle-B 2068 Fagun 17 Wednesday Recommendation in Nepalese Perspective

  25. ToR of Financial Stability Unit (FSU) • conduct regular stress tests; • examine the implications of various economic policies focusing the fiscal policy for financial stability; and • recommend policy measures to the FSSC which impact financial stability. Quality Circle-B 2068 Fagun 17 Wednesday Recommendation in Nepalese Perspective

  26. Frequency of Meeting of FSSC should be once in a month not exceeding 45 days and meeting of the task force will be fortnightly. • The FSSC will publish financial stability review report half yearly for public consumption as well. Quality Circle-B 2068 Fagun 17 Wednesday Recommendation in Nepalese Perspective

  27. The Quality circle though formed informally; hereby suggests to consider the recommendations made in this document with revision if deemed necessary. Quality Circle-B 2068 Fagun 17 Wednesday Conclusion

  28. Quality Circle-B 2068 Fagun 17 Wednesday

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