Financial System Stability Objective

Financial stability refers to the efficient functioning of the financial system that results in its broad resilience to possible financial or economic shocks. Financial system stability is also concerned with minimizing systemic risks associated with negative spill-overs between the financial system and the real economy. Since the financial system is comprised of financial institutions, financial markets and the payment and settlement infrastructure, each of which interact to support real economic activity, financial stability as well is an essential element of a well-functioning economy.

Financial system stability:
  1. Supports and encourages a stable macroeconomic environment which aids in attracting both local and foreign investment into an economy.
  2. Assists monetary authorities in achieving the mandate of delivering price stability by promoting the effectiveness of the monetary policy transmission process.
  3. Is fundamental in promoting financial intermediation as the availability of investible funds is a key factor in the growth process of the economy.
  4. Encourages effective and efficient operation of the financial markets as well as the proper functioning of the payments and settlements system, which are key conduits for promoting economic growth.

Central Bank's Role in Macro-prudential Surveillance

The Bank of Jamaica (BOJ) was assigned institutional responsibility for the oversight of financial system stability with the passage of the Bank of Jamaica (Amendment) Act, in October 2015. The main requirement of this institutional responsibility is the inclusion of a macro-prudential approach in its oversight of the financial system. The macro-prudential approach will complement the traditional institutions-based supervisory approach of regulated entities through the monitoring and curtailing of developments in the financial system that could pose systemic risks.

The Bank of Jamaica (Amendment) Act, 2015 provides to the BOJ additional powers for its conducting macro-prudential oversight. These responsibilities include the power to request the inspection of any financial institution as well as the power to issue rules and standards to address systemic risks and imbalances in the financial system that could threaten stability.

Another critical component of the Amendment is the establishment of a Financial System Stability Committee (FSSC) that serves to make assessments in relation to financial system stability. See Legislation section.

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