BOJ to Extend Its Monitoring Role

The Bank of Jamaica Act is to be amended, to accord the Central Bank legal authority to extend its financial stability function to include non-bank financial institutions, including credit unions and other financial intermediaries.
Addressing the Mona School of Business Roundtable 2010, ‘Managing Risk for Growth & Development’, held recently at the Mona Visitors’ Lodge and Conference Centre, University of the West Indies, Mona, Governor of the Bank of Jamaica,
Mr. Brian Wynter, observed that the forum was taking place at a time when the world was focused on issues related to financial stability and the enhancement of risk management.
Mr. Wynter emphasised that good risk management was of critical importance for the firm, the industry and the economy as a whole and that an efficient risk management system was one of the key ingredients for increasing the productivity of investment in Jamaica. “A robust and stable financial system capable of directing capital to its most efficient use is therefore a necessary condition for economic growth. The efficient allocation of capital underlies economic efficiency, international competitiveness, and economic stability,” he argued.
The Governor noted that as a financial system supervisor, the Bank of Jamaica was committed to facilitating sound risk management in the financial system.
“From the perspective of the Central Bank, therefore, the early identification and measurement of risk, the development and enforcement of sound liquidity risk management practices, good corporate governance and risk control are the critical components of sound risk management,” he added.
The Governor said that the global financial crisis demonstrated the importance of good macro-level surveillance in identifying potential risks that might be developing in the economy. “Recall that the crisis had its origins in an abundance of credit.and a general lack of sound oversight on the part of some banks, some companies and some authorities,” he informed.
Mr. Wynter noted that financial intermediaries play a vital role in facilitating growth and economic development by pooling household savings and channeling them to the real sector.
“Countries with financial intermediaries, which are better at acquiring information and more adept at implementing and enforcing corporate governance principles in order to increase investor participation as well as manage risk, typically grow faster than countries with less developed financial systems. Jamaica’s financial intermediaries can therefore increase the efficiency of investments and improve the potential for growth by improving their risk management capabilities,” he said.
With respect to the amendments to the Central Bank’s regulatory functions
Mr. Wynter proposed that the Act should include, among other things, the legal authority to ensure, by various specified means, the stability of the financial system, to establish codes and standards for the discharge of its financial stability function and to use the Bank’s lender-of-last-resort capabilities for the purpose of promoting system-wide stability.
He further argued that the Bank of Jamaica would also strengthen its institutional arrangements in accordance with the expanded financial stability function. Already, the Bank has taken measures to enhance the surveillance of commercial banks, especially with regard to the monitoring of risks.
The Bank is currently strengthening its financial stability framework to include the monitoring of risk exposures of non-bank financial institutions and the assessment of the robustness of their capital adequacy. This is intended to enhance the Bank’s ability to hold systemically important intermediaries to standards commensurate with their importance in the financial system, to spot emerging risk and to apply regulatory authority to require the intermediary to promptly address these risks.