Speech by NBU Governor Yakiv Smolii at Macroprudential Policy Strategy Presentation
Today, we are presenting to you the Macroprudential Policy Strategy of the National Bank of Ukraine. Despite the lengthy name, the document is simple at its core: it outlines a strategy to ensure the stability of the financial system.
Ensuring financial stability is one of the two key functions of the NBU, together with maintaining price stability, under the Law On the National Bank of Ukraine. We work hard to perform these functions.
That includes efforts to improve the effectiveness of banking supervision and introduce new instruments, like the short-term LCR or the annual assessment of banks’ resilience.
Next in line is a full-fledged development of a system of macroprudential regulation of Ukraine’s financial market in compliance with global standards. The groundwork for the prospective system is laid by guidelines prepared by the European Financial Stability Board (EFSB). The document we have published today explains how macroprudential regulation will work in Ukraine.
Why is the use of macroprudential policy important for Ukraine?
In the past 20 years, our country has been hit by three deep financial crises. The last of them resulted from military aggression and the economic recession of 2014–2016 and stands to have a long-lasting effect on Ukraine’s economic growth.
The depth and frequency of Ukraine’s systemic crises can be attributed, among other things, to the lack of effective banking regulation at the micro level and the absence of a system to maintain financial stability, including measures to prevent the emergence and accumulation of systemic risks. In other words, in the past, the banking sector was unprepared for crises.
Since then, the NBU has done a massive amount of work to keep any potential crisis from catching the banking sector off guard. The transition to effective risk-based banking supervision is underway. At the macro level, i.e. on the scale of the financial system as a whole, the implementation of macroprudential policy measures has already been launched.
The NBU’s implementation of macroprudential policy will not only make the financial system more sustainable but also reinforce trust towards banks and facilitate a further macroeconomic stabilization. In the long run, it will ensure sustainable economic growth, more resilient to negative shocks and crises.
To conclude, let me reiterate that ensuring financial stability is a task that goes beyond the scope of banking regulation. After all, the financial system is made up of banks as well as other financial institutions.
In the absence of similar requirements for other financial institutions, effective regulation of the banking sector creates room for regulatory arbitrage. This erodes the effect of regulation on banks. Thus, the impact of macroprudential policy will be maximized if there is a comprehensive policy in place that enables the top-to-bottom regulation of all segments of the financial market.
We will continue to apply increasingly more efforts to make sure the financial system is stable. In accomplishing this task, the NBU will be guided by the Macroprudential Policy Strategy, which has been made public today.
Thank you for your time!