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Financial stability has been defined as the resilience of the financial system in the face of adverse shocks so as to enable the continued smooth functioning of the financial intermediation process. Effective financial intermediation, which involves the ability of households and businesses to channel savings into productive investments with confidence, is essential for sustained economic growth and the welfare of Trinidad and Tobago.
The Central Bank is aware that focusing on promoting the stability of each of its licensees individually (micro-prudential supervision) is insufficient to minimize the occurrence of domestic financial crises. Macro-prudential policy must also be employed; this focuses on controlling systemic risks in the financial system as a whole that can stem from each of the components of the financial system – financial institutions, financial markets and financial infrastructure or the indirect participants in the system – households, non-financial corporations and the public sector. This comprises a regime of risk management tools, including stress testing, to assess the risks and vulnerabilities of the financial system. In addition, the Central Bank, under the Central Bank Act, has the power to assume emergency control of any bank or insurance company, with a view to resolving any distress of the particular institution. The Central Bank can also act as lender of last resort for any distressed bank.
The financial stability objectives of the Central Bank are:
- To maintain confidence in, and promote the soundness and stability of, the financial system in Trinidad and Tobago;
- To promote the existence of efficient and fair banking and financial services markets;
- To maintain an appropriate level of protection for depositors, policyholders and pension plan members, and
- To supervise all persons regulated by the Central Bank to determine whether they are in sound financial condition and in compliance with their respective legislation.