Bank Negara Governor Datuk Nor Shamsiah Yunus says the central bank remains committed to implementing the NSFR requirements as part of overall liquidity standards applicable to licensed banks in Malaysia.
KUALA LUMPUR: Bank Negara Malaysia plans to extend the observation period for the net stable funding ratio (NSFR) in the country for another year to 2020, says its Governor Datuk Nor Shamsiah Yunus.
She said on Tuesday this will take into account the central bank's intention to conduct further on-site assessments to validate the maturity and robustness of the liquidity and funding practices of banks, and uneven progress in implementation at the global level.
Nor Shamsiah said Bank Negara remains committed to implementing the NSFR requirements as part of overall liquidity standards applicable to licensed banks in Malaysia.
“At present, all banks maintain adequate liquidity buffers against short term liquidity stress, and the vast majority of banks already report NSFR levels above the minimum 100% based on observation data,” she said.
She was delivering her keynote address at the Financial Stability Conference, “Re-envisioning Financial Stability – The Path Forward” here.
In her speech, she said 10 years have passed since the global financial crisis of 2008.
“In the words of the famed American economist, Paul Samuelson, “what we know about the global financial crisis is that we don’t know very much”.
“Policymakers around the world continue to direct their energies towards searching for signs of the next crisis, and preparing themselves to deal with it when it comes,” she said.
Nor Shamsiah said the central bank's challenge isn’t just a question about where, but when a crisis is going to strike and how it will spread. And therefore when, how and with what instrument policymakers should act.
In a more globalised financial system, authorities also face increasing pressures to conform to global standards, many of which were not designed with institutions that have no or limited activities beyond their domestic borders in mind, she said.
She pointed out global standards are also often ill-equipped to respond to specific conditions in domestic financial systems that differ significantly in their stage of development and vulnerabilities to risks.
Nor Shamsiah suggested four strategic priorities for financial stability authorities as they navigate an uncertain future.
She said first, authorities need to remain vigilant. While the global financial system is now on a stronger footing, according to the International Monetary Fund (IMF), near-term risks to global financial stability have risen modestly, while medium term risks remain elevated.
She cautioned that emerging economies face mounting pressures that continue to see more volatile capital flows. Tightening financial conditions may also expose financial fragilities that have been created over an extended period of easy monetary conditions.
In addition, structural changes in the financial system are giving rise to new risks, including those presented by a growing shadow banking system and fintech players which might not fall within the regulatory net.
Nor Shamsiah said roboadvisors, algorithmic trading and other automated trading platforms powered by AI also have the potential to induce highly disruptive procyclical market behaviour, notwithstanding their substantial benefits in reducing transaction costs and increasing market liquidity.
And of course, there are cyberthreats with the global cost of cybercrime projected to reach US$2 trillion in 2019.
“Both the tools and coverage of surveillance activities to support financial stability have evolved significantly in the post-crisis period. It is imperative that authorities continue to build on this to capture current and future emerging risks.
“The good news is that with the rise of big data and new technologies, authorities have the capacity to achieve what was not possible before to keep a pulse on developments affecting the financial system,” she said.
Second, authorities must continue to develop and deepen their understanding of risk transmission. Approaches to quantify the immediate, direct impact on institutional resilience are now reasonably well developed.
“However, further work remains in mapping out the second and higher order effects on the broader financial system and economy,” she said.
Third, authorities must have a broad policy toolkit for responding to financial stability risks. In recent years, central banks and other authorities responsible for financial stability have had their mandates clarified and powers strengthened for this purpose.
In Malaysia, the enactment of new central bank legislation in 2009 accorded Bank Negara with strengthened surveillance powers, along with broad powers to implement measures to avert risks to financial stability.
This included powers to resolve non-viable financial institutions and powers to direct specific institutions running systemic risks to take measures to reduce those risks. These powers are in addition to Bank Negara’s regulatory and supervisory powers over banks and insurers.
“Having such powers is useful in a crisis. But the ability to operationalise them can be a whole different matter that requires greater attention to forethought and scenario-planning,” she said.
Fourth, she said, authorities need to increase policy agility. Every crisis or financial stability issue is different, and each requires a different policy response.
The pressure will be on authorities to be able to respond to an infinite variety of problems, which are very rarely understood clearly at the onset, and which often evolve rapidly, she added.
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