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MACRO PRUDENTIAL SUPERVISION

MACRO PRUDENTIAL SUPERVISION. Laxmi Prapanna Niroula Director Nepal Rastra Bank. PURPOSE. Financial crisis brings macro-economic imbalances, similarly macro-economic imbalances bring financial crisis, so m acro prudential approach help protect it.

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MACRO PRUDENTIAL SUPERVISION

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  1. MACRO PRUDENTIAL SUPERVISION Laxmi Prapanna Niroula Director Nepal Rastra Bank

  2. PURPOSE Financial crisis bringsmacro-economic imbalances, similarly macro-economic imbalances bring financial crisis, so macro prudential approach help protect it. Macro prudential approach help identify macroeconomic risks, systemic risks in the financial system as a whole and takes necessary action. To mitigate the wider macroeconomic risks. To prevent appearing assets price bubbles due to banking system. To maintain monetary and financial stability. To prevent from taking too much risk.

  3. PURPOSE To preserve safety and soundness of banking system. To prevent financial system from systemic risk. To build confidence of depositors To preventrisky behavior. Regulatory capital requirement is not only measure to prevent the crisis. To preventbanks from failing.

  4. SUPERVISORY APPROACH Macro prudential supervision looks at wider macroeconomic risk. MPS mitigate the wider macroeconomic risks. Judgment/ discretion based supervision on macro level. Supervisory interventions clearly acted towards mitigating the major risks prone to financial sector stability. Micro financial perspectives are not sufficient to maintain financial stabilities

  5. SUPERVISORY APPROACH MPS to protect adverse impact to the real economy. Ultimate objective: Avoid losses due to a financial crisis. Monitoring method: To examine overall weakness of the system.

  6. Customization of macro-prudential supervision in Nepalese perspective. MPS should continuously examine the macroeconomic variables and supply of credit from banking system. MPS should critically examine and identify the macroeconomic risks in the economy. Based on the MPS, the supervisory body should be able to critically analyze the impact of macro-economic expansion and contraction in financial system.

  7. Customization of macro-prudential supervision in Nepalese perspective. Supervisor can critically analyze and develop the correlation between components of GDP and banking portfolio. Supervisor can suggest A class banks and National level development banks to hire macro and micro economic analyzer in the institution. Macro prudential supervision unit should be established within the supervision department.

  8. Customization of macro-prudential supervision in Nepalese perspective. Macro and micro prudential perspectives can be joined together to create a strong supervisory framework that address a wider range of supervisory objectives.

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