Article 4 (2) of the revised Act specifically states that it shall be one of the objective of the Bank to “ensure the stability of the financial system.”  2  The core principles recommended by the Committee on Payment and Securities Settlement Systems of the Bank for International Settlements (BIS). 2  BIS Review 50/2004  committee dealing with financial stability, the Banking Supervision Committee, and at the EU level the Bank also participates in the Economic and Finance Committee and in its Financial Stability Table. The importance of two-way cooperation with the MFSA The initiatives I have described have strengthened the Bank’s ability to monitor and analyse developments in the financial system in a wider context. It is nevertheless becoming increasingly clear that to carry out this role effectively, the Bank’s efforts in this area need to be supported by the activities of the overall supervisor in the financial field, that is the MFSA. It is, therefore, reassuring to note that good co-operation already exists between the Bank and the Authority. More specifically, the Authority’s focus on the health of individual service providers complements the Bank’s macroprudential analysis of the financial system as a whole and its oversight of the payment and settlement systems. In undertaking their respective tasks, both these institutions have access to information that may not be readily available to the other.
Thus, for example, through its involvement with payment systems and the daily monitoring of the banks’ foreign exchange exposures, the Central Bank of Malta has daily information on the amount of liquidity and the extent of foreign exchange risk prevalent in the inter-bank market. Similar information, however, only becomes available to the Authority with a delay, through the monthly statistical reports submitted by the individual financial intermediaries. Furthermore, the Bank’s macro perspective assessment of financial developments may identify general risks to the system that may not be apparent when the prudential supervision of individual financial institutions is undertaken. This may occur, for example, if the risk profiles of the institutions in question show a high degree of similarity, making the system especially vulnerable to a particular type of shock. Supervision at the micro level, therefore, has to be complemented with a macro analysis of the interlinkages between different segments of the domestic financial sector and its links with the payment system, the rest of the economy and its counterparts abroad. On the other hand, it is also true that the Bank’s macroprudential analysis may not provide precise information on individual institutions, particularly those that may be on the brink of insolvency. Here, the Authority, through regular inspections of individual service providers will have a more in-depth knowledge of the health of single intermediaries and market segments, including those which play a peripheral role in the monetary policy transmission process and with which the Bank’s relationship is, at least on a one-to-one basis, rather distant.