Financial system and supervision

Summary

The transcript outlines the evolution of Armenia's financial system, focusing on the development of the banking sector and the role of the Central Bank in regulating and supervising financial institutions. Key stages include the emergence of commercial banks in the early 1990s, the establishment of a two-level banking system, and the introduction of corporate governance principles. The Central Bank has taken on the role of a mega regulator, overseeing various financial organizations. Efforts to ensure transparency, prevent systemic risks, and protect consumers have been central to Armenia's financial reforms, culminating in the creation of a financial system mediator.

Takeaways

• 😀 The global financial market shares common risks and challenges, affecting all participants.
• 😀 Armenia's banking system has evolved in stages since its independence, with significant reforms from 1991 to 2002.
• 😀 The introduction of corporate governance principles in Armenia helped shift decision-making power from owners to professional managers.
• 😀 A credit registry was introduced in Armenia to enhance loan repayment effectiveness and reduce non-diligent borrowers.
• 😀 The Central Bank of Armenia (CBA) became a mega regulator in 2006, overseeing all financial organizations in the country.
• 😀 Financial institutions must obtain a license from the Central Bank of Armenia to operate and comply with prudential standards.
• 😀 The CBA uses on-site inspections and off-site supervision to monitor financial institutions' activities and ensure compliance.
• 😀 The CBA has divided supervision into preventive regulation (macro-level) and market conduct regulation (micro-level).
• 😀 Preventive regulation focuses on reducing systemic risks and ensuring fair practices, while market conduct regulation ensures fair, transparent customer relationships.
• 😀 The Financial System Mediator, established in 2009, offers free, independent services to resolve individual consumer complaints against financial institutions.

Q & A

What was the primary issue in the banking system during the early stages of Armenia's financial development?

The primary issue in the early stages was the presence of small banks with poor quality assets and low capitalization, which led to risky activities and necessitated prompt intervention from the central bank.

How did Armenia address the issue of struggling banks in the 1990s?

In the 1990s, Armenia launched a phase of cleaning the banking system, which included removing banks with poor assets and increasing the minimum requirements for statutory capital. This led to the consolidation and merging of banks.

What significant changes were made to Armenia's financial regulatory system between 1996 and 2002?

Between 1996 and 2002, Armenia focused on introducing corporate governance principles, increasing financial intermediation, and enhancing the professionalism of bank management by separating ownership from management decisions.

What role did the Central Bank of Armenia play in the country's financial regulation after 2006?

After 2006, the Central Bank of Armenia became the 'mega regulator' of the financial system, overseeing and regulating financial organizations while focusing on preventing risks and ensuring market stability.

What is the purpose of the credit registry introduced in Armenia in the early 2000s?

The credit registry was introduced to accumulate and classify complete information about borrowers, helping banks assess risks, detect non-diligent borrowers, and increase loan repayment levels.

What are the two types of supervision implemented by the Central Bank of Armenia for financial institutions?

The two types of supervision are on-site inspections and off-site supervision. Both ensure that financial institutions comply with regulations and standards set by the Central Bank.

How did the Central Bank of Armenia redefine its supervision efforts in 2007?

In 2007, the Central Bank redefined its supervision by separating preventive regulation and supervision from market conduct regulation, creating a dual approach to ensure fairness in client relations and safeguard the financial system's integrity.

What are the key principles behind preventive regulation in Armenia's financial market?

Preventive regulation focuses on systemic risk management and prevention by enforcing various prudential standards and requirements. This macro-level supervision aims to reduce the probability of threats to companies and ensure financial market stability.

What is the role of the Office of the Financial System Mediator in Armenia?

The Office of the Financial System Mediator, which started its activities in 2009, protects the rights and interests of individual consumers in the financial sector by reviewing complaints and claims against banks and financial organizations.

How does Armenia ensure the transparency and fairness of financial institutions?

Armenia ensures transparency and fairness through a combination of regulatory measures, including supervision by the Central Bank, transparency requirements for financial institutions, and the involvement of independent auditors and market participants.