Financial stability in a highly uncertain global environment: Is there a need for more resilience?

The Central Bank of Malta held its annual seminar on the 16^th edition of the Financial Stability Report which assessed developments that occurred in 2023.

In his welcome address, Acting Governor Mr Alexander Demarco referred to uncertainty as a constant, and increasingly so in a globalised world, and that the ensuing risks and impacts should never be underestimated. He stated that all stakeholders need to be mindful that these constant challenges and increased complexities faced by the financial sector and the wider economy, call for concerted efforts from all stakeholders. He mentioned that this could be achieved with strong collaboration, eagerness to innovate and a firm commitment to deliver. In this manner, all stakeholders can together build a financial sector that is not only resilient to shocks but remains capable to foster sustainable economic growth. In this regard, he reiterated the importance of enhancing resilience of the financial sector.

Alan Cassar, Chief Officer Financial Stability and Statistics Division then presented the key highlights of the Report, in which he outlined the positive performance of the sector and its main strengths and identified the risks surrounding it. Joanne Ciantar, Senior Expert from the Financial Stability Assessment Office delivered a presentation on the latest work relating to the identification of cyclical systemic risk developments, focusing on potential excessive credit in the private non-financial sector.

This year, the Bank had the pleasure of inviting Alessio De Vincenzo from the Banca d’Italia who is the Head of the Financial Stability Directorate in the Directorate General for Economics, Statistics and Research. De Vincenzo provided his views on the current European macroprudential framework, making references to current discussions on extending the framework to also capture the non-bank financial intermediation segment.

In his closing remarks, Deputy Governor Oliver Bonello noted that amid the global heightened uncertainty, the domestic banking sector remained resilient. He referred to the importance of adaptability to maintain financial stability in a highly uncertain global environment. In this regard he cited the need for financial institutions to stand ready to swiftly adjust their business models and risk management practices in response to volatile market conditions and regulatory challenges. Bonello also mentioned the importance that the macroprudential framework remains fit-for-purpose in a constantly changing environment and that building resilience in the financial system in a world of uncertainty remains crucial.