The global financial crisis of 2008-2009 and the lingering global growth slowdown in its aftermath are vivid examples of how imbalance and instability in macroeconomic and financial environments create downward spirals, Bangladesh Bank Governor Atiur Rahman said yesterday.
“It is, therefore, of utmost importance to remain watchful against risks or threats to stability and balance in the macroeconomic and financial environments, promptly addressing new vulnerabilities.”
To maintain a balanced and stable macroeconomic environment, monetary and fiscal authorities need to pursue effective coordination of forward-looking policies, he said.
Rahman spoke on macroeconomic environment and financial sector stability, managing vulnerabilities and crises, at the 29th SEANZA Governors' Symposium held at Radisson Hotel in Dhaka yesterday.
SEANZA that stands for Southeast Asia, New Zealand and Australia grew out of a 1956 meeting of central bank governors from the Asia-Oceanic region. It promotes cooperation among central banks by providing intensive and systematic training for central bankers.
It also facilitates information sharing on the issues and problems of common interest among the banking supervisors of the member institutions of SEANZA. The number of its member countries has grown to 20. It has 24 organisations as members.
Global cooperation dialogue aimed at imposing discipline on dominant advanced economies against persistent macroeconomic imbalances has so far gone nowhere, he said.
“Small open economies like ours have therefore to make defensive strategies for mitigating the disruptive impacts of negative external spillovers from imbalances in the larger advanced economies,” Rahman said.
“Although Bangladesh does not yet have too much to worry about systemically important globally active, too-big-to-fail banks and financial institutions, Bangladesh Bank is active in building up supervisory capabilities of early identification,” he said.
“Routine stress test exercises are mandatory for banks to identify vulnerabilities; banks and financial institutions found vulnerable in these tests or otherwise deficient in BB's assessments are placed under intensified supervisory vigilance until recovery to healthiness.”
Capacity building for risk focused management of banks and financial institutions, and capacity building for risk focused supervision in BB are major undertakings requiring substantial outlays in both IT infrastructure and expert trainer manpower resources, he said.
“Appropriate twining arrangements with some more advanced central bank peers in the SEANZA forum for mentoring and training in this area could usefully supplement the ongoing efforts in BB; and perhaps also in other SEANZA forum member central banks with similar needs.”
“Because socially responsible inclusive and environmentally responsible financing has such clear positive link with macroeconomic and financial stability, I don't see why monetary and financial supervisory authorities should feel shy of promoting these in their monetary and financial policies.”