25.05.2016, 08:31
Financial Market Infrastructures to Be Ready for Stress Scenarios
OREANDA-NEWS. Infrastructural financial institutions including exchange houses, clearing organisations and settlement depositaries should have a package of measures, developed in advance, aimed at helping recover the organisation’s financial stability and ensuring the continuity of its key functions at times of stress. This is according to the Bank of Russia-developed Guidance Note for the financial market’s infrastructures, released today and available on the Bank of Russia website.
To develop the action plan, each organisation will have to generate a list of stress scenarios to provide for both unique events (as may have direct impact on the organisation) and systemic risks. For example, it is recommended that risks taken into account include the strengthening country risk, capital outflows and adversely performing asset prices in one or several markets, as well as a macroeconomic downturn which comes with sovereign rating downgrades, growing inflation and unemployment.
This effort should also include specifying quantitative and qualitative indicators which trigger a certain scenario in the recovery plan. Such plans will need to be implemented in the shortest timeframe possible so as to prevent potential costs and to minimise the adverse effect of the measures being undertaken as regards the infrastructural organisation itself and the national financial system overall.
Specific financial stability recovery instruments will need to be developed in a way that they take into account, beyond proprietary ‘rescue plans’, the organisation’s key functions and the types of risk it is exposed to. The problems which may arise should be solved in a manner which excludes the onset of any new threats to the stability of the national financial system and that of other entities operating in the Russian financial market.
These Bank of Russia recommendations have been developed on the basis of international documents available. Ensuring financial stability of infrastructures and continuity of their operations is central to the operation of a reliable financial market and financial system in Russia in general.
To develop the action plan, each organisation will have to generate a list of stress scenarios to provide for both unique events (as may have direct impact on the organisation) and systemic risks. For example, it is recommended that risks taken into account include the strengthening country risk, capital outflows and adversely performing asset prices in one or several markets, as well as a macroeconomic downturn which comes with sovereign rating downgrades, growing inflation and unemployment.
This effort should also include specifying quantitative and qualitative indicators which trigger a certain scenario in the recovery plan. Such plans will need to be implemented in the shortest timeframe possible so as to prevent potential costs and to minimise the adverse effect of the measures being undertaken as regards the infrastructural organisation itself and the national financial system overall.
Specific financial stability recovery instruments will need to be developed in a way that they take into account, beyond proprietary ‘rescue plans’, the organisation’s key functions and the types of risk it is exposed to. The problems which may arise should be solved in a manner which excludes the onset of any new threats to the stability of the national financial system and that of other entities operating in the Russian financial market.
These Bank of Russia recommendations have been developed on the basis of international documents available. Ensuring financial stability of infrastructures and continuity of their operations is central to the operation of a reliable financial market and financial system in Russia in general.
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