One of the most important lessons among the multitude we learned after disclosing the bank frauds and the bank crisis of 2014-2016 is that the National Committee for Financial Stability (NCFS or the Committee) undoubtedly needs to be reformed thoroughly. Established in 2010, its capacity to prevent and manage the recent bank crises proved to be inefficient. In addition, due to its politicized format and unclear mandate, NCFS was one of the main institutional weaknesses causing instability in the banking system.
The need to reform the Committee has been previously confirmed by the International Monetary Fund (IMF), in its 2014 Financial Sector Assessment Program, experts’ community and the Prime Minister Pavel Filip in 2016. Even though generally, there is a consensus on the need to reform NCFS, this process has developed quite slowly until now. One of the main actions taken in this respect was the change of the Committee membership in October 2016 in order to decrease its exposure to political influences (the Prime Minister, the Chair of the Parliamentary Committee on Economy, Budget and Finance and the General Secretary of the Government were excluded). Another important measure was the introduction in April 2016 in the Law on NBM of additional powers allowing the Bank to adopt some measures to stabilize the financial sector in times of crisis.
Despite all measures taken by authorities so far, the financial stability framework remains problematic. Thus, the mandate of the current Committee is still unclear, focusing on solving rather than preventing crises, is ambiguous and sometimes overlaps with the powers of other institutions (especially of the NBM). Similarly, NBM mandate on financial stability remains incomplete, because it focuses more on solving financial crises, and less on preventing them. Another issue is that the Committee must define systemic crises, which is a triggering factor for further NBM activities (NBM cannot undertake actions to stabilize the financial system if the Committee fails to notify about the systemic crisis), but criteria underlying this decision are not defined clearly. Finally, yet importantly, the macro-prudential supervision, which is a key element for every financial stability framework, has an institutional and regulatory vacuum.
A wise reform of the National Committee for Financial Stability would address the existing gaps on the basis of lessons learned from the previous failures of this institution and from the experience of other EU countries. Particularly, the Committee must concentrate predominantly on preventing financial crises and enhancing the communication and coordination between institutions in charge of the financial stability. Besides, it should not undermine the members’ independence and should not have overlapping duties with its members.
This report aims to bring back the subject of financial stability framework in the public space and to ensure a better understanding of this reform by decision makers, opinion leaders, and ordinary people. The document is based on the findings that the German Economic team and Expert-Grup made in their study conducted last year, on the principles of the European Systemic Risk Board and on the practices of other states (e.g.: Romania, Bulgaria, Poland, Estonia, Germany, Netherlands), regarding the operation of committees in charge of financial stability. Thus, it makes a summary of the Committee’s previous failures and specifies the key principles that must guide the reform of the Committee.
This publication was produced under the ”Support for structural reforms in the banking, energy and state-owned enterprises sectors from Moldova”, funded by the British Embassy in Chisinau through the Good Governance Fund. The content of this publication is the sole responsibility of the author and does not necessarily reflect the views of the British Government.