Malta has also adopted the European Directive of 4th April 2001 on the reorganisation and winding up of credit institutions and their branches in Member States, which should facilitate the harmonisation of any eventual measures that may have to be taken in this regard. In compliance with EU legislation on the promotion of international payments, the Central Bank has meanwhile brought into force the Directive on Cross-border Credit Transfers. Another Directive, on Electronic Payments Services, which seeks to ensure a high level of consumer protection in the field of electronic payment instruments, came into force on May 1st this year. Looking forward, we believe that Malta’s financial system is well placed to benefit from EU membership. While the banks may face some challenges from increased competition, there will also be opportunities for growth. In particular, Malta is well positioned to serve as a bridgehead between Europe and North Africa, and some Maltese banks have already been exploiting this market niche, participating actively in the Mediterranean Bank Network set up after the Barcelona Declaration of 1995. The recent emergence of Libya on the international scene, a country with considerable potential with which Malta has long maintained close commercial ties, should also open up further opportunities in this direction. Malta’s inherent qualities, moreover, make it an attractive location. The island has a stable economic and political environment as well as a highly qualified and motivated workforce in the legal, accounting and consulting services professions and in banking and finance.
Central banks that also supervise core financial institutions would have the clear benefits of immediate access to vital information and expert assessment from supervisory staff about the health of individual institutions and their systemic implications. This could greatly help reduce the likelihood of any unnecessary delay or even misinformed decision that might hamper efforts to stem a financial crisis. For emerging market economies, the case for central banks to supervise the core financial institutions may be even stronger. This is because, financial markets in these countries are typically not well developed enough to serve as an efficient channel for the transmission of monetary policy. Market interest rates and even commercial banks’ prime rates react only sluggishly to changes in central bank’s policy rate, and often with a long time lag. In these circumstances, the traditional tool of monetary policy alone is unlikely to be enough to maintain economic and financial stability. Since in most emerging market economies, commercial banks are by far the most dominant players in the financial system, central banks with supervisory responsibilities could and should make use of targeted prudential policy to tackle financial imbalances and excessive asset price movements, both of which lie at the heart of all financial crises. This was what we did in 2003 to successfully contain incipient speculative bubbles in the property sector by imposing a ceiling on banks’ loan-to-value ratio of high-end housing loans.