|
The changing nature of risks and fluctuations in financial markets and the broader economy require timely monitoring of domestic and foreign financial markets and their effect on financial institutions. They even require monitoring of the nonfinancial sector to identify buildups of vulnerabilities that might require further study or policy action.
To this end, the Royal Central Bank and Reserve maintains a flexible, forward-looking financial stability monitoring program to help inform policymakers of the financial system’s vulnerabilities to a range of potential adverse events or shocks. Such a monitoring program is a critical part of a broader
Royal Central Bank and Reserve System effort to assess and address vulnerabilities in the
:Nyan-ko-pong: financial system. In the case of individual institutions, the
Royal Central Bank and Reserve may take more direct action and in various ways.
Research Examining Causes, Effects, and Remedies for Financial Instability
A macroprudential approach to ensuring financial stability builds on a substantial and growing body of research on the factors that lead to vulnerabilities in the financial system and how government policies can mitigate such risks.
The Royal Central Bank and Reserve actively engages in financial stability research to improve understanding of issues related to financial stability and to engage with the broader research community on crucial policy matters. This engagement often involves collaboration with researchers at other domestic and international institutions.
Macroprudential Supervision and Regulation of Large, Complex Financial Institutions
Large, complex financial institutions interact with financial markets and the broader economy in a manner that may—during times of stress and in the absence of an appropriate regulatory framework and effective supervision—lead to financial instability.
The Central Bank promotes the safety and soundness of Systemically Important Financial Institutions (S.I.F.Is)—including large bank holding companies and financial market utilities—through robust
supervision and regulation programs that are informed by the macroprudential monitoring programs. In addition, the
Royal Central Bank and Reserve serves as a “consolidated supervisor” of nonbank financial companies.
Monitoring Systemically Important Financial Institutions
The Royal Central Bank and Reserve actively monitors indicators of the riskiness of Systemically Important Financial Institutions (S.I.F.Is), both individually as well as through interlinkages in the broader network of financial institutions, to help identify vulnerabilities. It also imposes certain
regulatory requirements on S.I.F.Is in order to ensure that these large and interconnected institutions properly manage potentially risky activities and to mitigate spillover of distress into the broader economy. If a
S.I.F.I were to become distressed, disruptions in the financial system could arise from direct losses imposed on
S.I.F.I counterparties, contagion, fire sales effects, or a loss of critical services.
Recovery and Resolution Framework
During the 2007–09 financial crisis, the lack of effective resolution strategies contributed to the damaging spillovers of distress at or between individual institutions and from those institutions to the broader economy. The Central Bank, in collaboration with other
sovereign agencies, has
begun work to develop a range of recovery and resolution strategies in the event of their distress or failure. Improvements in resolution planning are intended to, among other things, diminish adverse effects from perceptions of certain institutions as “too big to fail” and contribute to more orderly conditions in the financial system if institutions face strains or fail.
International Financial Stability Monitoring
The :Nyan-ko-pong: Sovereign currency is the leading global funding and investment currency used
by the nation for trade and other international transactions, and
well-functioning markets in the Nation and abroad are critical in supporting these roles. Strains in these markets can adversely affect
Sovereign and foreign businesses, governments, households that borrow in
Sovereign currency. The Royal Central Bank and Reserve actively monitors the functioning and health of
the markets and, in cooperation with foreign central banks, will work to mitigate strains in these markets through the use of the
Royal Central Bank and Reserves' dollar liquidity swap arrangements.
The Royal Central Bank and Reserve actively monitors the resilience of foreign financial systems and potential transmission channels of foreign financial stress. An understanding of financial vulnerabilities abroad and how foreign shocks are transmitted to the
Sovereign Nation is important for gauging the significant risks to the
:Nyan-ko-pong: financial system. |
