Financial stability can be defined as a condition in which the financial system – which comprises financial intermediaries, markets and market infrastructures – is capable of withstanding shocks and the unraveling of financial imbalances. This mitigates the prospect of disruptions in the financial intermediation process that are severe enough to adversely impact real economic activity. The objective of macro-prudential supervision is to mitigate the build-up of vulnerabilities in the financial system and ensure a robust financial system.

Financial stability implies that the financial system can efficiently perform its societal role even when subjected to considerable shocks. Vulnerabilities can cause or amplify financial stress and economic downturns when the economy is exposed to shocks. The purpose of macro-prudential supervision is to mitigate the build-up of vulnerabilities in the financial system or increase resilience to shocks. There are different instruments used in macro-prudential supervision. 

Target Participants

This course is intended for participants who are engaged in macro-prudential surveillance or financial stability oversight in central banks and monetary authorities. Participants should have three to five years of experience in banking or broader financial sector supervisory activities, such as on-site examination, off-site monitoring, or regulatory policy development. They should also have a basic understanding of the preeminent role of capital and liquidity in minimizing the risk of individual and collective failure of financial institutions. 

Objectives 

By the end of the course:

1. participants should understand the various threats to financial stability that exist in financial sectors of emerging and advanced economies;

2. be able to link proposed policy measures to these specific threats;

3. be able to spot flaws and recommend improvements in financial stability mandates and governance structures;

4. be able to explain the relative effectiveness of monetary policy and MPP in addressing threats;

5. know how to distinguish between macro-prudential and micro-prudential supervision and explain how they might overlap;

6. be conversant in the full range of tools that central banks, banking supervisory agencies, deposit insurance funds, and finance ministries have at their disposal to manage and resolve financial crises.

Course Content

1. Introduction

 2. Role of Central Bank in safeguarding financial stability

3. The importance of the macro-prudential approach to regulation and supervision

4. Price stability and financial stability: is there a trade-off?

5. Macro-prudential supervision: its role, objectives and instruments

6. The macro-prudential supervisory framework