One of the lessons learned from the global financial crisis was that crisis management frameworks in many countries are inadequate for dealing with systemic financial crises, and that financial regulators need proper tools to resolve failing banks and other systemic financial institutions in an orderly manner, without unnecessarily exposing taxpayers to risk of loss and causing wider economic damage.
Macroprudential policy entails measures and tools taken by Bank of Uganda to reduce systemic risks. There is growing recognition of the importance of macroprudential policy to reduce systemic risk as a complementary policy framework to microprudential regulation and macroeconomic management.
Financial Stability Committee
In 2010, the Bank of Uganda established a Financial Stability Committee (FSC). The FSC formulates macroprudential policies, relating to financial stability, prudential regulation and crisis resolution. The committee, which meets on a quarterly basis, is charged with contributing to the achievement of the Bank’s financial stability mission by taking action to remove or reduce systemic risks and enhancing the resilience of the Ugandan financial system.
Financial Sector Surveillance Committee
For the Bank’s efforts to ensure financial stability to be effective, a wealth of relevant information is required. To this effect, the Bank of Uganda established a Financial Sector Surveillance Committee (FSSC). The Committee’s primary objective is to provide a forum for those responsible for macroeconomic management and financial sector regulation in Uganda to discuss issues pertaining to enhancing the stability of the financial sector, to share data and market intelligence and coordinate financial crisis management arrangements.
The committee is composed of chief executive officers of regulators in the financial sector and is chaired by the Minister of Finance Planning and Economic Development, with the Governor of Bank of Uganda being an alternate chair. The FSSC is a high level committee with representatives from the following institutions: Capital Markets Authority, Insurance Regulatory Authority and, Uganda Retirement Benefits Regulatory Authority.
Communication of Financial Stability Issues
Bank of Uganda’s views on financial stability are communicated in several different ways. The Bank publishes an annual Financial Stability Report and an Annual Supervision Report, which present the Bank’s view of the possible risks and the banks’ capacity to cope with any shocks. In addition, the Governor, Deputy Governor and Executive Directors also give speeches giving their views on financial stability issues.