THE Bank of Jamaica (BOJ) has released a discussion paper on institutional arrangements for safeguarding financial stability, which outlines proposed amendments to the BOJ Act to vest the bank with overall responsibility for financial stability, through a Financial Stability Committee.

The paper which was posted on the BOJ website at the beginning of the month reflects amendments and comments received from the Attorney General’s Chambers, Ministry of Finance, the Financial Services Commission, the Jamaica Deposit Insurance Corporation, the Jamaica Securities Dealers Association as well as individual financial institutions.

However, that being done, the BOJ has extended the discourse to other interested parties, through publication of the proposed amendments on its website, https://www.boj.org.jm, with an invitation for comments.

The major policy shift would arm the BOJ with institutional responsibility for financial stability in Jamaica. It is an element of the set of reforms that underpin the Stand-By Arrangement with the International Monetary Fund (IMF), while seeking to provide appropriate safeguards, going forward.

According to the paper, “one of the important lessons emanating from the global financial crisis, is that institutional responsibility for the stability of the financial system, as a whole, needs to be clearly defined, codified and assigned”.

The discussion paper noted that full responsibility for financial stability is “unclear where there are multiple supervisory agencies, with none having the authority or mandate to oversee the links among different kinds of activities and to recognize and address systemic risks”.

The document stated that, in order to address this deficiency, the route taken by most jurisdictions has been to locate this function within their central banks.

“Adding financial stability oversight to the role of central banks has been a logical choice in light of their existing supervisory role over banking institutions, in most cases, their core mandate to influence conditions in money and credit markets and their essential function as store of liquidity in the economy,” the BOJ document stated.

The paper argued that the main requirement to effect this change is the definition of a set of amendments to the BOJ Act, to facilitate a more macro-prudential approach to oversight of the financial system as a whole.

“This would complement the BOJ’s traditional direct prudential approach to supervision of the deposit-taking system and expand both the focus and scope of the consultative process currently conducted through the Financial Regulatory Council,” the paper added.

The Central Bank said that many other jurisdictions around the globe are concurrently pursuing a similar process of financial architecture reform, to formalise the financial stability role and that, based on Jamaica’s “own experience and regulatory architecture as well as other considerations”, amendments to the BOJ Act have been proposed to meet the objective of assigning formal responsibility to the BOJ and ensuring its ability to discharge the function.

The proposed amendments, which will “mandate the financial stability objective of the BOJ”, includes macro-prudential oversight of financial institutions, in addition to the current mandate for the direct prudential supervision of individual institutions and sub-sectors within the deposit-taking system.