Financial Crime World

Armenia Faces Financial Institution Crisis Management Challenges: Central Bank Takes Action

Ensuring Financial Stability in the Face of Uncertainty

The Central Bank of Armenia has recognized the importance of effective crisis management to ensure financial stability, acknowledging that financial crises can have far-reaching consequences for the country’s economy.

What is a Financial Crisis?

According to the Central Bank, a financial crisis occurs when there are serious liquidity and/or solvency problems affecting one or more financial institutions, leading to a high probability of disruption to the financial system and loss of confidence in the sector.

Mitigating Risks through Comprehensive Frameworks

To mitigate such risks, the Central Bank has established a comprehensive framework for managing financial crises. This includes cooperation with:

  • The Deposit Guarantee Fund
  • The Government of Armenia
  • Other public authorities under a 2010 trilateral memorandum of understanding

Developing Crisis Management Strategies

The Central Bank’s Financial Stability and Special Regulatory Committee plays a crucial role in developing and proposing action plans to restore financial stability. The committee’s proposals are guided by six key principles:

Key Principles for Crisis Management

  • Efficiency and integrity
  • Competitiveness
  • Protection of public funds
  • Regular exchange of information
  • Confidentiality
  • Transparency

International Best Practices and Tools

When developing its crisis management strategy, the Central Bank also considers internationally practiced resolution plans that are applicable to Armenia’s current legislative framework.

The Central Bank has a range of tools at its disposal to restore financial stability, including:

  • Providing loans
  • Injecting liquidity into the system
  • Imposing limits on bank operations
  • Recognizing insolvent institutions
  • Establishing special economic standards for financial groups
  • Imposing sanctions on individual institutions or managers

Enhancing Crisis Management Capabilities

To further enhance its crisis management capabilities, the Central Bank organizes annual simulation exercises to identify potential problems and improve the skills of those involved in managing financial crises. These exercises are conducted with the assistance of international organizations such as:

  • The World Bank
  • The Financial Sector Advisory Center in Vienna (FinSac)

Strengthening Crisis Management Capabilities: A Critical Step for Armenia’s Economy

The Central Bank’s efforts to strengthen financial institution crisis management come at a critical time, as Armenia’s economy continues to face challenges. By taking proactive steps to manage financial risks, the country can better weather economic storms and ensure long-term stability and growth.