IRTI - Distance Learning 1 Financial Stability Dr Dadang Muljawan.
Post on 26-Mar-2015
227 Views
Preview:
Transcript
IRTI - Distance Learning 1
Financial Stability
Dr Dadang Muljawan
IRTI - Distance Learning 2
The basic concepts
The basic concepts
Contents of discussion
Sources of funds
Sources of funds
Financing products
Financing products
Other servicesOther services
IRTI - Distance Learning 3
B
IntroductionIntroduction1
IRTI - Distance Learning 4
I. IntroductionB
- Mobilize public funds
- Optimize resource allocation process
- Promote product innovation and flexibility
- Promote fair competition in the Islamic financial industry
- Facilitate the transactions of goods and services
- Provide adequate customer protection
- Promote good governance and risk management
A sound and efficient Islamic financial system is capable to:
IRTI - Distance Learning 5
I. IntroductionB
Stability and
robustness
Internal factors External factors
- Currency volatility
- Price volatility
- Fraud
- Inefficiency
- Illiquid market
- No safety net
- Panic
- Imported inflation
Sources of instability
IRTI - Distance Learning 6
I. IntroductionB
Stable and robust Islamic financial system requires:
- Strong institutions and markets
- Efficient infrastructure
- Supporting policies
- Crisis management protocol
IRTI - Distance Learning 7
B
The pillarsThe pillars2
IRTI - Distance Learning 8
II. The pillarsB
Strong Islamic financial institutions and markets
Islamic bankingIslamic banking
Zakat institution
Zakat institution
TakafulTakaful
Micro financeMicro
finance
Islamic pawn house
Islamic pawn house
Finance co’y
Finance co’y
Capital Market and
Money market
Capital Market and
Money market
Competence, GCG and risk management, information system, market structure, supervision and
customer protection
IRTI - Distance Learning 9
II. The pillarsB
1 Improving level of competence- Develop standard for training to promote technical competence (in terms of financial and sharia aspects), integrity, and business ethics and sharia principles for the players as and supervisors.
- Certification program for Islamic financial professionals
- Regular review on the materials of the training and certification program.
Strong Islamic financial institutions and markets
IRTI - Distance Learning 10
II. The pillarsB
2 Good governance and risk management
- The implementation of good governance principles for the Islamic financial institutions.
- Standard guidance for governance, risk management and business continuity plan which adopts the international accounting standards and IFSB prudential standards.
- Periodical review to adopt any developments including products and regulatory approach.
IRTI - Distance Learning 11
II. The pillarsB
3 Information system- The information system should be capable in
providing accurate and timely information covering Islamic financial subsectors whenever required. The development of the informational system is aimed at promoting efficiency and accuracy of the financial authority when making strategic decisions. This information exchange would also improve the capability of the system to conduct surveillance activities comprehensively.
IRTI - Distance Learning 12
II. The pillarsB
4 Market structure- The capability of the Islamic financial institutions
to play significant role in financial intermediation and risk management is also affected by the soundness, efficiency and liquidity of the market. The development process should be able to consolidate the development plan of each sector and focus on the financial deepening that maximizes the benefits of the financial system to the real economic development program.
IRTI - Distance Learning 13
II. The pillarsB
5 Regulation and supervision
- The development of the supervisory system should accomodate the need for cross-sectorial supervisory capability supported by appropriate system and man-power.
- Information exchange program among financial authrities is very important, particularly as a foundation for establishing an early warning system that is capable of foreseeing potential disturbance to the financial system.
IRTI - Distance Learning 14
II. The pillarsB
6 Customer protection- Customers and investor protection program is
aimed at minimizing the vulnerability to any financial disturbance caused by unverifiable information or destructive rumors.
- Transparency and financial performance are mutually reinforcing.
IRTI - Distance Learning 15
B
InfrastructureInfrastructure3
IRTI - Distance Learning 16
III. Efficient infrastructureB
1 Deposit insurance- Deposit insurance plays a very fundamental role
in maintaining public confidence high by providing a certain level of deposit repayment guarantee, particularly to the retail depositors, in the case of bank closure.
- Public may not get well informed about the difference between underlying transactions applied in the deposit products and the investment products.
- Operationally, the deposit insurance company should take part in the supervisory activities to ensure systemic stability.
IRTI - Distance Learning 17
B
2 Payment system- A reliable and efficient payment system plays an
important role to support development in an Islamic financial market and, subsequently, the economic development by facilitating financial transactions among the economic players.
- The sistem designed should be able to minimize risks resulted from the settlement process such as liquidity risk, credit risk, Herstatt risk and systemic risk.
III. Efficient infrastructure
IRTI - Distance Learning 18
B
3 Fatwa resolution- fatwa resolution is very essential to maintain
public confidence through providing legal certainty to the players. In some countries that operates Islamic financial institutions, fatwas have been compiled and standardized to improve efficiency.
III. Efficient infrastructure
IRTI - Distance Learning 19
B
Supporting policiesSupporting policies4
IRTI - Distance Learning 20
IV. Supporting policiesB
1 Monetary policy
The monetary policy is made to provide clear signals to the market by using conventional as well as sharia compliant instruments.
2 Fiscal policyThe government can also participate in the development of Islamic finance by a regular issuance of Islamic government securities or sukuk locally and internationally.
IRTI - Distance Learning 21
B
Crisis management protocol
Crisis management protocol5
IRTI - Distance Learning 22
V. Crisis management protocolB
Financial policies should be set based on two possible condition: normal business and during the period of crisis. - The CMP serves as the anticipatory action to
maintain the operational soundness of the financial system even if it operates under a significant financial pressure so that the intermediary function can always be performed.
- The CPM should promote possible prompt corrective actions to stabilize the system whenever necessary.
IRTI - Distance Learning 23
BBusiness continuity plan (BCP) – The financial authorities require the Islamic financial institutions to have business continuity plan to anticipate significant financial disturbance. The BCP should also be supported by qualified human resource and adequate information technology that allows the management to take right actions whenever necessary. Framework for coordination – Setting up a solid legal foundation for the coordination activities among the parties involved in the CMP decision making process. This includes procedures for decision making process, roles and responsibilities, flows of information and sets of possible prompt corrective actions to be taken during the crisis.
V. Crisis management protocol
IRTI - Distance Learning 24
B
Early warning system – The information system that is capable to indicate financial turmoil is very essential in the implementation of CMP. Accurate information about the market allows the authority to define the critical period based on the thresholds set by the financial stability committee and decide the actions to be taken. Stress test – The financial authority may require the financial institutions and also themselves to conduct stress test. Proper stress test can improve mutual understanding among the market participants and regulator. It also allows them to regularly identify weak areas that need to be improved.
V. Crisis management protocol
IRTI - Distance Learning 25
B
Solvency regimeSolvency regime6
IRTI - Distance Learning 26
BVI. The solvency regime
At product levelAt product level
Sharia contractsSharia contracts
Expected residual value
Expected residual value
Types of claimsTypes of claims
Accounting standards
Accounting standards
Classification of financial products that are compliant to fatwas issued
Classification of financial products that are compliant to fatwas issued
Accounting treatments leading
to the sound financial practices
Accounting treatments leading
to the sound financial practices
Financial classification
describing the types of claims and
possesion of the assets
Financial classification
describing the types of claims and
possesion of the assets
The basis for further calculation like risk
management
The basis for further calculation like risk
management
IRTI - Distance Learning 27
BVI. The solvency regime
Risk management
Risk management
Expected lossExpected loss
Objectives
Objectives Micro:
Operational sustainability
Micro:Operational sustainability
Macro:Minimizing potential systemic
costs
Macro:Minimizing potential systemic
costs
Deposit insurance
Deposit insurance
Fiscal constraints
Fiscal constraints
Cost minimizingCost minimizing
Exit policyExit policy
Networth levelNetworth level
At institution and macro levelAt institution and macro level
IRTI - Distance Learning 28
BVI. The solvency regime
At institution and macro levelAt institution and macro level
0))((lim
tANetWorthNWt
A
dtCCMint
MBO )1(
where , CBO, CM and represent the potential of having a bail-out, the cost resulted from a bail-out process,a maintenance cost and discount rate respectedly. The first operator expresses the expected bail-out cost; whilst, the second operator expresses the present value of the expected menyatakan maintenance cost drawn from t to infinity. The supervisor selects the independent variables that are considered influencing the two possible events :(x1,...xn-1,xn). It is assumed that the operational sustainability of Bank A is higher than Bank B if A>B.
The networth and optimal stopping time:
IRTI - Distance Learning 29
Read! In the Name of your Lord, Who has created (all that exists),Has created man from a clot.Read! And your Lord is the Most Generous,Who has taught (the writing) by the pen,Has taught man that which he knew not.
B
Thank you for your kind
attention and support
top related