Central Bank of Kenya Takes Steps to Identify and Mitigate Risks to Financial Stability
The Central Bank of Kenya (CBK) has outlined its plans to develop a framework for identifying and mitigating risks to the financial stability of the country. This move comes as part of the bank’s efforts to strengthen its ability to monitor and respond to threats to the banking system.
Developing Market Operations and Payment Systems
The proposed framework will involve developing market operations and payment systems that support monetary policy objectives, while also identifying key risks to financial stability. The bank has already established a Financial Stability Division, which will be responsible for conducting macro-prudential analysis and monitoring the financial system.
Enhancing Internal Governance Structure
The CBK has identified several areas where it needs to improve its internal governance structure in order to effectively coordinate assessments of key risks to financial stability. This includes:
- Establishing an internal committee with formal financial stability responsibilities
- Ensuring that the bank is discharging its mandate to identify and mitigate risks to financial stability
Seeking Input from Relevant Departments and External Sources
The proposed framework also emphasizes the importance of seeking input from other relevant departments within the CBK, as well as external sources, in order to identify and quantify risks to financial stability systematically. The bank has also outlined plans to develop an analytical framework and processes that will support its work in identifying key systemic risks.
Clarifying Policy Tools
The CBK has clarified its policy tools, emphasizing the need for equal weight to be placed on designing policy responses to mitigate identified risks. This includes:
- Developing market operations frameworks and payment systems that support financial stability objectives
- Placing equal weight on designing policy responses to mitigate identified risks
Key Risks to Financial Stability Identified
According to the CBK, some of the key risks to financial stability identified include:
- Systemic liquidity risk
- Credit risk
- Operational risk
- Market risk
These risks are seen as posing a threat to the stability of the financial system and the economy as a whole.
Conclusion
The Central Bank of Kenya’s efforts to develop a framework for identifying and mitigating risks to financial stability are a positive step towards strengthening the country’s financial system. The bank’s proposed framework emphasizes the importance of seeking input from other relevant departments within the CBK, as well as external sources, in order to identify and quantify risks to financial stability systematically.
The move by the CBK is seen as a significant step towards ensuring the stability of the banking sector and promoting economic growth in the country.