Financial Stability
The Importance 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.
Understanding Macro-prudential policy And Its Operation
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.
Strategies for Achieving Financial Stability
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.
The Process of Communicating Decisions
The transparency of financial stability policy is ensured by the CBA through key communication channels. The main channels are the published Financial Stability Reports (FSR), the Board decisions on macroprudential policy, press releases, speeches and the publication of other supporting materials and research papers. Our communication is aimed at both internal and external stakeholders. Our communication is directed towards both domestic and external stakeholders. In order to improve the effectiveness of communication and achieve our goals, we demonstrate an individual approach based on the previously mentioned types of stakeholders and their level of expertise. The main channels of communication on financial stability policy with key stakeholders are the website of the CBA, media, social networks, meetings with target audience, conferences, workshops.
Sustainable Finance
Sustainable finance aims at integrating Environmental, Social and Governance (ESG) criteria
into financial decision making and supporting sustainable economic growth. It also aims at
increasing financial actors' awareness and transparency about the need to mitigate and manage
ESG risks, considering the longer-term nature of such risks and the uncertainty on their valuation and pricing.
Central Bank's Financial Stability Committee
The Central Bank's Financial Stability Committee (Committee) is a standing political committee (advisory body). The Chairman of the Committee is the Chairman of the Central Bank of Armenia. The Committee discusses the current situation of the macro-financial environment of the Republic of Armenia, possible directions of developments, risks related to financial stability, as well as proposals, measures and implementation directions aimed at ensuring financial stability.
