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FINANCIAL STABILITY

Introduction

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 banks. 

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 intermediation functions.
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.​
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