Banks Trained on Macro Prudential Shocks to the Financial System

Twenty-Five financial stability experts from eight Central Banks in the COMESA region have been trained on the transmission mechanism of macro-prudential shocks to the financial system.
The training held virtually from 9 – 13 May was motivated by the fact that macro prudential shocks have the potential to disrupt the normal credit intermediation channel and may result in a widespread curtailment of credit to bank dependent borrowers. This could then disrupt the entire financial system.
In view of this, the COMESA Monetary Institute (CMI) organized the training to enhance the capacity of analysing the most important features of transmission channels of macro prudential shocks on the financial system, especially during periods of extreme widespread financial distress.
The other objective of the training was to deepen understanding of the interdependencies among key financial and macroeconomic variable and the feedback effects thereof.
Speaking during the opening of the training, CMI Acting Director Dr Lucas Njoroge, underscored the importance of understanding the transmission mechanism of macro prudential shocks, to safeguard the financial system against the build-up of systemic risk.
He noted that the training was an important step towards designing appropriate macro prudential policies as it uncovered the process through which (macro prudential) policy impacts the financial system.

“This training and opportunity to share experiences is important as the successful implementation of macro prudential regulations require an accurate assessment of how fast the effects of macro-prudential impulses spread to other parts of the financial system and the timing and size of these effects,” Dr Njoroge added.

The training was titled ‘Transmission Mechanism of Macro Prudential Shocks to the Financial System: Application of Vector Auto Regressions (VAR), Structural VAR (SVAR) and Vector Error Correction Models (VECM).
Countries that participated in the training are Djibouti, Egypt, Malawi, Mauritius, Sudan, Tunisia, Uganda and Zimbabwe.