A crisis can disrupt the intermediation function of the financial system and impede banks from managing their risks efficiently. Risk monitoring and risk assessment enable the authorities to take timely measures to prevent or reduce the impact of events which could lead to vulnerabilities in the financial system. Clear communication strategies and allocation of responsibilities between the authorities concerned become essential. The Central Bank of Malta has a key role in the management of potential financial crisis situations; therefore, it continuously develops operational capabilities for their timely management and resolution.
Provision of liquidity to credit institutions
The Central Bank of Malta is also responsible, in terms of Article 17 of the Central Bank of Malta Act, to provide financial support through the provision of emergency liquidity assistance to safeguard the stability of the banking sector. This is resorted to only in exceptional circumstances as a last resort when solvent credit institutions undergo a liquidity strain that is perceived to pose a threat to the stability of the financial system.
Development of the domestic crisis management framework
A framework has been drawn up by the Central Bank of Malta, the Malta Financial Services Authority (MFSA) and the Ministry for Finance (MFIN), under the auspices of the Domestic Standing Committee (DSC), to clearly establish the underlying principles and networking procedures for managing financial crises, including the principles and operational structures for domestic and cross-border cooperation. The DSC, composed of representatives from the Bank, MFSA and MFIN, meets regularly to discuss and exchange views on financial soundness and if necessary to manage potential systemic problems. The objectives of the DSC have been established in a Memorandum of Understanding (MoU), endorsed by the three authorities, on cooperation for the prevention and management of financial crisis situations.
The prevention and resolution of crises
The Central Bank of Malta is a signatory to the 2008 MoU on cooperation between financial supervisory authorities, central banks and finance ministries of the European Union on cross-border financial stability. The Bank and the MFSA are also signatories to the 2003 MoU, which sets out guiding principles for cooperation in crisis situations between the European Central Bank, the national central banks and supervisory authorities within the European System of Central Banks. Moreover, they are signatories to the MoU on cooperation between payment systems overseers and banking supervisors in Stage Three of Economic and Monetary Union, in force since 1 January 2001.