Financial stability means that the financial system is able to perform its financial intermediation role without significant disruptions and negative effects on economic growth both in peaceful times and in times of turbulences when the systemic-level risks and shocks materialise. A sound financial system enables people and businesses to safely make payments, borrow, save, invest and insure against potential risks. Financial instability and crises, in their turn, have a negative impact on economic growth, employment and investment.
In order to promote financial stability, Latvijas Banka:
- analyses the financial system and economic developments in Latvia and abroad, identifies and assesses the systemic risks to the financial stability, as well as evaluates whether the financial system is able to withstand potential shocks;
- takes macroprudential policy measures to prevent the risks from having a broader impact on the financial system.
The ultimate objective of macroprudential policy is to contribute to the safeguard of the stability of the financial system as a whole, including by limiting the build-up of systemic risks and by strengthening the resilience of the financial system.
To achieve the ultimate objective, medium-term intermediate objectives have also been outlined:
- to limit the risks of excessive credit growth and leverage;
- to limit systemic liquidity and funding risks in the financial system as a whole;
- to limit the direct and indirect exposure concentration;
- to limit systemic risks to financial stability caused by excessive risk-taking by systemically important institutions.
These objectives have been identified taking into account the Recommendation of the European Systemic Risk Board of 4 April 2013 on intermediate objectives and instruments of macro-prudential policy (ESRB/2013/1) and the national specifics. In order to achieve them, macroprudential measures are being implemented.