Preserving and protecting the UAE’s financial system
The Financial Stability Department (FSD) helps to maintain and promote financial stability in the UAE by conducting analyses to assess the potential risks and vulnerabilities facing the country’s financial system, and by supporting the Central Bank of the UAE’s financial stability decision-making.
This analysis is crucial to creating new policies and measures that help to mitigate identified risks and prevent disruption to the financial system. Alongside our contributions to policy, analysis and financial stability decisions, we produce and publish reports and papers to share essential insight with our stakeholders.
Financial Stability Analysis and Decision
Financial Stability Analysis
Financial Stability Analysis covers regular assessments of the financial system’s resilience, risks and vulnerabilities, and thematic analysis of emerging risks and trends in the financial sector. Analysis of the international financial system provides prompt identification of spill-over risks to the UAE financial system. Recommendations and decisions to implement macro-prudential measures and other financial system policies are based on thorough consideration. Analysis of the international financial system provides prompt identification of spill-over risks to and from the UAE financial system. Meanwhile, the CBUAE identifies emerging risks rapidly in special focus areas, thanks to the thematic assessments that it conducts regularly.
Financial Stability Decisions
Under the authority delegated by the Board of Directors of the CBUAE, the Financial Stability Policy Committee (FSPC) reviews the stability of the country’s financial system, domestic and international economic developments. The FSPC works to mitigate systemic risks by proposing financial stability policies and measures, as well as to ensure readiness to manage any financial crisis. Additionally, the FSPC reviews and approves key research, economic and financial publications.
Financial Stability Policies
As part of the CBUAE, the Financial Stability Department (FSD) employs financial sector policies that strengthen the resilience, improve the efficiency and address identified vulnerabilities in the financial system.
The financial crisis management and preparedness policy increases the CBUAE’s readiness to respond to a financial crisis. This specific policy ensures that any serious system-wide problems in the financial industry are addressed promptly through co-ordinated cross-functional policy action.
Macro-prudential Policy Tools
Macro-prudential policy instruments refer to measures within the CBUAE’s powers that are aimed at reducing risks in the financial system and mitigating the effects of threats. The Financial Stability Department (FSD) completes macro-financial assessments to support the implementation of macro-prudential policies. Macro-financial analysis links financial market conditions and economic activity. These assessments are based upon a broad range of information and analytical methods, including macro-prudential stress tests.
The table on this page provides an overview on the dedicated macro-prudential instruments that can be deployed by the CBUAE to meet its macro-prudential policy objectives. If considered necessary, it can also use other prudential instruments, supervision and regulations, to achieve macro-prudential objectives.
The changing nature of structural and cyclical risk means that the CBUAE applies different methods to address different risks...
The tools that address structural risks in the financial system can remain at established levels for prolonged periods of time, with revisions only in cases when policy levels are found to be inadequate.
Tools addressing cyclical risks require more active involvement to adjust policy levels, according to the financial cycle development stage, to mitigate sources of risk to financial stability.
The purpose of stress testing is to identify and analyse vulnerabilities in the UAE’s financial system. The objective of this task is to provide a forward-looking capital and liquidity adequacy assessment of individual banks and the UAE’s banking system, to assess their capacity to withstand potential adverse systemic risks.
The Financial Stability Department (FSD) completes both top-down and bottom-up stress tests in the UAE.
Top-down stress tests are conducted in-house, using internal models and tools.
Bottom-up stress tests are conducted by participating banks under consistent methodologies, scenarios and key assumptions developed by the FSD, in co-operation with the other stakeholders. The aggregate results of stress testing are published in the annual Financial Stability Report.
Financial Crisis Preparedness and Management
The CBUAE has adopted a comprehensive Financial Crisis Preparedness and Management framework.
Its objective is to ensure that serious problems in the financial system, especially in banks, are addressed effectively and immediately. Prompt action minimises the potential risks of contagion, the drying-up of liquidity or possible fiscal burdens on the country.
The framework helps to maintain trust in the UAE’s financial system, and its proper functioning during stressful times. As crises often appear suddenly and present unique challenges, the framework’s flexibility allows for an effective, tailored response.
The CBUAE responded to the COVID-19 pandemic’s uncertainties by activating its Financial Crisis Preparedness and Management framework, and introducing a comprehensive Targetted Economic Support Scheme.
Financial Stability Report
Core Financial Soundness Indicators
Last updated on: Thursday 28 July 2022
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