Financial Stability Unit

The Financial Stability Mandate

Maintaining financial stability is one of the primary objectives of the Reserve Bank of Malawi (RBM), as set out in Section 4 of the Reserve Bank of Malawi Act, 2018. In pursuit of this objective, Section 24(k) of the Act mandates the RBM to formulate and implement macroprudential policies to mitigate the build-up of risks and vulnerabilities that could threaten the stability of the domestic financial system, as well as to establish a crisis management framework for systemic risks.

The Financial Stability Unit (FSU) exists to enhance financial system stability through macroprudential analysis and formulation of macroprudential policies. The FSU supports the Bank's mandate to safeguard Malawi's financial system by identifying, monitoring, and mitigating systemic risks and vulnerabilities. Through continuous surveillance, evidence-based analysis, and policy engagement, the FSU promotes financial system resilience and contributes to overall macroeconomic stability.

Background

In January 2012, the Financial Stability Division was established within the Economic Policy & Research Department (then the Research & Statistics Department), in line with the RBM's mission "to maintain price and financial stability through the formulation and implementation of sound monetary and macro-prudential policies." From June 2022 to the present, the Division was relocated from the Economic Policy & Research Department to operate as an autonomous unit within the Regulation function under the Executive Director (Regulation) and was renamed the Financial Stability Unit (FSU).

Key Objectives

  • Enhance financial system stability to support overall macroeconomic stability.
  • Improve stakeholder understanding of financial stability.
  • Enhance macroprudential assessment and policy formulation for financial system.
  • Improve the conduct of the macro-stress testing, interconnectedness analysis, and contagion risk assessment.
  • Improve research, data management and dissemination.
  • Enhance advisory role and collaboration with Government and other stakeholders.
  • Enhance financial crisis preparedness and prevention, management and resolutions.

The FSU Undertakes The Following

  • Conduct macroprudential (system-wide) surveillance of the financial system and promote preventive measures to mitigate emerging risks and vulnerabilities.
  • Monitor and assess key macroeconomic and financial developments in the domestic, regional and global environment with a view to identifying vulnerabilities that may contribute to building up systemic risks to domestic financial system.
  • Review regional policies and the work of the international standard setting bodies in safeguarding financial stability.
  • Monitor the financial system in order to identify and assess risks that threaten the stability of the system and recommend systemic risks mitigation arrangements through macro-prudential and micro-prudential policy actions.

Operational Streams

The current work of the FSU is organised into three main streams: Stream 1, Macro-financial Surveillance and Assessment; Stream 2, Macro Stress Testing and Macro-financial Modelling; and Stream 3, Macro-financial Research.

  • Stream 1 – Macro-financial Surveillance and Assessment: This stream focuses on detecting and assessing systemic risks through ongoing surveillance and quantitative and qualitative analysis of developments in macroeconomic and financial system indicators.
  • Stream 2 – Macro Stress Testing and Macro-financial Modelling: This stream focuses on developing a macroprudential toolkit for financial stability assessments.
  • Stream 3 – Macro-financial Research: This stream focuses on research into systemic risk issues that may affect macro-financial stability.

Future Direction

The FSU will now also be taking on a 4th stream of work – that on Crisis Planning & Management in 2026 and beyond. This entails planning for prevention of and management of systemic wide (systemic) financial crises in the context of financial stability.

Financial Stability Surveillance In The RBM and The Role Of The FSU

The FSU in collaboration with the Supervision departments, Economic Policy and Research and Financial Markets Departments, National Payment Systems department and other RBM departments & relevant Government agencies, carries out monitoring, diagnosis & assessment of macroprudential developments and formulation of macroprudential policy.

  • The Financial Stability Technical Committee (FSTC): Comprises a technical team led by the FSU that works in the context of a micro-level and macro-level analytical component of detection of systemic risk.
  • The Financial System Stability & Development Committee (FSSDC): Comprises policymakers from the RBM Supervision and Regulation and relevant Economic Function departments as well as relevant Government agencies responsible for macroprudential policymaking.

Publications and Analytical Tools

The FSU coordinates and contributes to the production of key financial stability publications, including the Financial Stability Report, which provides an evidence-based assessment of systemic risks and vulnerabilities within the financial system. The Unit also develops and maintains a suite of analytical tools for systemic risk monitoring, including macro stress-testing frameworks, financial stability indices, banking sector stability indicators, risk and vulnerability matrices, heatmaps, interconnectedness models, and systemic risk surveys.

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