Definition of Financial Stability
The issue of ensuring financial
stability has been given most credit in 2007-2008 in the aftermath of global
financial and economic crisis, when it became clear that the policy steered to
regulating individual financial institutions is still incomplete and insufficient
to maintain the stability of the entire financial system. At the same time,
without the stability of the financial system, it is impossible to ensure a
sound macroeconomic environment.
Given the importance of
maintaining financial stability, ensuring financial stability in a number of
countries has been enshrined in law as one of primary objectives of central
The body responsible for ensuring
financial stability in the Republic of Armenia is the Central Bank of Armenia
(Central Bank), and this function is set out in Article
200.2 of the Constitution of the Republic of Armenia and Article 4 of the Law of the Republic of Armenia on the
Central Bank of Armenia. The above-mentioned articles provide that ensuring
price stability and financial stability in the Republic of Armenia are the
Central Bank’s primary objectives.
According to the Central Bank,
financial stability is the ability of a financial system, i.e. financial institutions,
markets, and market infrastructure, to withstand possible shocks and
imbalances, thus reducing the likelihood of disruption of financial
The goal of financial stability
is not the stability of a single financial institution, but the stability of
the entire financial system.
In view of maintaining the
financial stability, the Central Bank of Armenia pursues a macro-prudential
policy. The Central Bank continuously monitors a variety of indicators of early
warning that signal the accumulation (or materialization) of risks in the
financial system, the indexes composed as a result of consolidation of these
indicators, and applies various risk assessment models and macro-stress testing
systems. The analyses carried out, as well as the conclusions/recommendations
made pursuant to such analyses are communicated to and discussed at the Central
Bank’s Financial Stability and Special Regulatory Committee meetings. Final
decisions on application of macro-prudential policy instruments are up to the
Board of the Central Bank of Armenia.
Central Bank’s Financial Stability and Special Regulatory Committee
The Central Bank’s Financial
Stability and Special Regulatory Committee (Committee) is an advisory body adjunct
to the governor of the Central Bank. The Committee is mandated to assess the
stability of the financial system, address and prepare for measures on maintaining
the system’s stability, propose on how and in which directions such measures will
be taken, and do other activities. If necessary, the Committee may conduct a
comprehensive analysis of the situation.
If appropriate, other people may,
in addition to the members of the Committee, be invited to its meetings. When
discussing certain issues, relevant representatives of the Ministry of Finance
of the Republic of Armenia, the Deposit Guarantee Fund, as well as
representatives of other state agencies may attend the meetings of the Committee.