The Central Bank of Bahrain (CBB) aims to ensure the continued soundness and stability of financial institutions and markets. The CBB believes that financial stability is critical for maintaining Bahrain’s position as an international financial center and for ensuring that the sector continues to contribute significantly to growth, employment and development in Bahrain.
The CBB defines financial stability as:
A situation where the financial system is able to function prudently, efficiently and uninterrupted, through providing financial services continuously even in the face of adverse shocks.
Monitoring financial stability is the primary responsibility of CBB’s Financial Stability Directorate (FSD), which conducts regular surveillance of the financial system to identify areas of concern and undertakes research and analysis on issues relating to financial stability. The FSD is central to CBB’s responsibility of maintaining monetary and financial stability.
The FSD’s main strategic objective is to identify potential threats to the safety and soundness of the Bahraini financial system before they result in systemic financial crises. In pursuit of its objective, the FSD has the following responsibilities:
- Conducting regular macroprudential surveillance of the financial system to identify areas of concern.
- Conducting regular analysis of the safety and soundness of the Bahraini financial system through Financial Soundness Indicators (FSI’s) developed to continuously monitor the financial sector.
- Monitoring domestic and international macroeconomic developments, with a view to assessing potential implications for financial stability in Bahrain.
- Advising CBB top management on issues and policies relating to maintaining the stability of the financial sector in Bahrain.
- Overseeing the operations, safety and efficiency of the national payment and settlement systems and the Financial Market Infrastructure (FMI) in the Kingdom of Bahrain for the evaluation of any financial stability risks.
A key components of CBB’s financial sector surveillance framework is the Financial Stability Report (FSR). Produced semi-annually by the FSD, the FSR is prepared for the CBB management and is also a key tool aimed at informing the public. Its principal purpose is macro-prudential surveillance, assessing the safety and soundness of the financial system, reviewing recent trends, detecting areas of concern that require supervisory and policy attention and identifying potential risks to financial stability to mitigate them before they develop into systemic risk.