ISTANBUL - As the global economy recovers from the financial crisis, the Central Banks are planning to regulate regional financial institutions through regulators in their home countries, Business Times has learnt.
The move is intended to reduce credit and market risks within the economy which are believed to be among the root causes of the financial crisis.
“As we get out of the crisis we are thinking about how to redesign the financial framework of these institutions.
There are a number of issues that have been discussed during these meetings of which Rwanda is interested,” Francios Kanimba , the Central Bank Governor told Business Times yesterday.
Kanimba spoke after attending a seminar session on improving regulatory architecture at the ongoing World Bank / IMF Boards of Governors meetings.
“We are planning to increase cooperation and have memorandum of understanding with the regulators in the countries where the parent institutions are allocated to be in position to follow how these parent banks are operating.
If there is any risk we can be informed on time,” he said. Kanimba noted that there is general consensus that regulatory reform is integral to minimizing the severity of future financial crisis.
Suggestions to enforce these reforms include improving cross border regulatory arrangements and addressing information gaps.
“This is a very important point that has been raised because these big financial institutions are the main origin of the crisis,” Kanimba said. He also pointed out that the root cause of the crisis was oversight of enforcing regulations to minimize risks by big financial institutions.
“It is a very important issue we have to look at in the near future,” he emphasized.
Currently there are four regional banks operating in Rwanda including, Access Bank and Ecobank from West Africa, Kenya Commercial bank and FINA bank from Kenya.
The Governor also mentioned that the Central Bank would strengthen supervision of banks in order to minimize risks within the banking sector.
Kanimba observed that the effect of the crisis has been severe in economies where the Central Bank is not mandated to regulate all financial institutions particularly in advanced economies.
“For us the Central Bank has the mandate to supervise all financial institutions including institutions that give out loans.
Experience is showing that banks are under regulation by the Central Bank the results have been better,” he said, explaining that his institution would intensify its role.
The International Monetary Fund (IMF) has called for better regulation and supervision of financial institutions to create financial stability as the global economy embarks on recovery.
The Fund also maintains that international policy coordination is critical for resolving the crisis and achieving strong, sustainable and balanced growth in future.