MEFMI and FSI conduct a Seminar on Crisis Management

The MEFMI/Financial Stability Institute (FSI) Policy Seminar for Heads of Supervision and Financial Stability is an annual event targeted at heads and other senior officials in charge of supervision and financial stability functions. The seminar presents an opportunity for the participants to discuss contemporary issues affecting financial stability and the soundness of individual banking institutions in their respective jurisdictions, share experiences, and tap expert advice on how to address the challenges.

The 2022 MEFMI/FSI Policy Seminar was held virtually on 9 and 10 November 2022. The theme for the seminar was Crisis Management, a topic that remains relevant due to the continued uncertainty in the global macroeconomy as a result of geopolitical tensions and military conflict in Europe, particularly in Ukraine. The conflict has worsened the inflationary pressures on food and energy commodities originally triggered by the covid-19 pandemic around the globe.

High inflation has become a new reality for everyone, and in a bid to curb it, several central banks have abandoned the relaxed monetary policy stance adopted during the pandemic and have hiked interest rates. However, the supply-side pressures from the conflict limit the effectiveness of the monetary policy measures. Among other adverse effects, the high inflation is exerting a lot of pressure on local currencies thereby causing a foreign exchange crisis.

The seminar comprised two sessions. During the first session, discussions focused on crisis management case studies from Iceland and Ireland. It covered the policy responses, decisions, and practical steps taken by the authorities when facing a severe banking crisis. Several rounds of stress tests, deleveraging plans, and the provision of central bank liquidity, as well as the creation of an asset management company, were among the key measures put in place in Ireland. In Iceland, newly adopted resolution powers let the authorities take control of the failing banks, create new and viable ones from them and establish depositor preference.

The second session discussed the role of deposit insurers in the funding and management of bank failures. When a failed bank is liquidated, the deposit insurer traditionally pays out insured depositors. However, orderly management of a bank failure often requires funding beyond the bank’s loss-absorbing capacity and may benefit from the use of the deposit insurance fund to help finance measures such as transfers of deposits and any viable business to another bank, as an alternative to pay-out. This expanded role of deposit insurance authorities brings new questions and challenges, that may require further adaptation of crisis management frameworks in the region.

A total of 80 officials from 10 MEFMI member countries (namely Angola, Botswana, Malawi, Mozambique, Namibia, Rwanda, Tanzania, Uganda, Zambia, and Zimbabwe) attended the seminar. Female participants comprised 39 per cent (31) of the participants while 61% were male (49).

The officials are expected to continue with the discussions and draw lessons from the experiences shared during the seminar as they develop and implement appropriate crisis management and resolution frameworks in their respective jurisdictions.

By Noel Mahombera