SBP setting up new financial stability body

KARACHI: Pakistan’s central bank is working to set up a financial consultative body in compliance with international regulatory and supervisory practices to safeguard financial stability in the country, an official said on Friday.

“Work is underway for establishing a National Financial Stability Council (NFSC),” said Abid Qamar, the chief spokesman for State Bank of Pakistan (SBP), in response to a query sent by The News.

The central bank, in its document, titled ‘SBP Vision 2020’ published last year had stated that a country’s financial system stability regime was always a ‘work in progress, as new risks continue to arise and system improvements keep on developing.

A former governor of the SBP said the proposal to set up a council was meant to assist an autonomous central bank. “The key assumption behind this is that a central bank is autonomous and the monetary policy and the banking system are not used by fiscal authorities as subservient tools to finance government transactions and cover fiscal deficits,” he observed.

However, he added, Pakistan was moving in the opposite direction in the matter of the autonomy of the SBP.  “A measure of legal and operational autonomy that was obtained during 1993-97 has gradually been eroded and by now the ministry of finance calls the shots in monetary and exchange rate management and even in the supervision of the banking system to ensure financial stability,” the former governor said.

 “In such an institutional setting, the SBP can put on paper the best international practices but in reality it would continue to act as a subordinate department of the ministry of finance in the matter of monetary policy, regulatory practices and supervisory authority over the banking system.”

He argued that on paper the SBP could show a movement towards adoption of best international practices but in reality it would remain a body incapable of becoming a modern central bank that acts as custodian of financial stability, conducts autonomous monetary policy for inflation control and regulates the banking system to promote financial stability. 

Apart from this criticism, the International Monetary Fund (IMF) appreciated the central bank’s efforts in promoting financial sector reforms and strengthens the sector’s resilience.  “Staff welcomed progress in strengthening the regulatory framework, including the ongoing phased implementation of Basel III liquidity and capital standards, to be finalised by end-2017 and end-2019, respectively,” said an IMF report issued last month. 

According to a senior banker, the SBP seems to boost cooperation with other bodies, something, it sees as key to safe and sound financial system and addressing the challenges being faced by banks in Pakistan.    “It will be set up under the SBP so, its day-to-day operations look to be conducting from the central bank,” he said.