The macroprudential oversight of the financial system constitutes one of the main tasks of the Central Bank of Cyprus (CBC), with a view to assist in safeguarding the stability of the financial system.
Macroprudential oversight focuses on the monitoring and assessment of the stability of the financial system as a whole as well as the implementation of macroprudential policy tools with the broad objective to limit the build-up of systemic risks. It is complementary to the microprudential supervision of individual financial institutions performed by the CBC and the other competent supervisory authorities of Cyprus’s financial sector.
The CBC, as the national macroprudential authority, has, inter alia, the responsibility for defining and implementing a macroprudential strategy for safeguarding the stability of the financial system, including strengthening the resilience of the financial system and decreasing the build-up of systemic risks, thereby ensuring a sustainable contribution of the financial sector to economic growth.
The CBC, in defining its macroprudential policy, also takes into account the recommendations issued by the European Systemic Risk Board (ESRB), which is responsible for the macroprudential oversight of the financial system within the European Union.
Under sub-recommendations A and B of the ESRB Recommendation on intermediate objectives and instruments of macroprudential policy (ESRB/2013/1), national macroprudential authorities are recommended to formulate a macroprudential policy which defines intermediate objectives and selects macroprudential instruments. As a result, the CBC has defined its macroprudential policy on Intermediate Macroprudential Policy Objectives and Selection of Macroprudential Instruments. This policy sets out the intermediate objectives and the macroprudential tools at the disposal of the CBC.
In accordance with sub-recommendation C1 of the ESRB Recommendation on intermediate objectives and instruments of macroprudential policy (ESRB/2013/1), national macroprudential authorities are recommended to define a policy strategy that links the ultimate objective of macroprudential policy with the intermediate objectives and the macroprudential instruments, establishes a sound framework for the application of instruments and fosters the transparency and accountability of the macroprudential policy. As a result, the CBC has defined its Policy Strategy Linking the Ultimate Objective of Macroprudential Policy of Safeguarding Financial Stability with the Intermediate Objectives and Instruments of Macroprudential Policy and Other Related Matters.