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Management of Risks to Financial Stability from the Perspective of a Central Bank

Author

Listed:
  • Gabriela Latea

    (Romanian Academy School for Advanced Studies of the Romanian Academy)

Abstract

This article investigates the main issues pertaining to a central bank’s concerns relative to financial stability, as seen from the perspective of risks, sources and key ways of action. At macroeconomic level, central banks need to identify and monitor the risk that market operators face payment default towards local entities (companies, households, government) and/or foreign creditors. Moreover, central banks entrusted with supervisory and licensing tasks are also carefully examining the various risks threatening banks, be they credit risk, liquidity risk, market risk, or risks associated with exposure concentration and distribution. On financial markets, prices, profit margins, interest rates, net exposure to certain financial instruments must be monitored to be able to identify build-ups of risks, stress and significant drawbacks to its adequate functioning. Adding to these is the Contingent Claims Analysis (CCA ), which involves oversight and assessment of risks in various sectors as well as of the needs to counter them, by drawing on the real market data to identify the probability of default in one sector or another and the impact on other sectors in an integrated manner.

Suggested Citation

  • Gabriela Latea, 2016. "Management of Risks to Financial Stability from the Perspective of a Central Bank," Finante - provocarile viitorului (Finance - Challenges of the Future), University of Craiova, Faculty of Economics and Business Administration, vol. 1(18), pages 132-140, November.
  • Handle: RePEc:aio:fpvfcf:v:1:y:2016:i:18:p:132-140
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    File URL: http://feaa.ucv.ro/FPV/018-015.pdf
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    References listed on IDEAS

    as
    1. Robert C. Merton, 2005. "Theory of rational option pricing," World Scientific Book Chapters, in: Sudipto Bhattacharya & George M Constantinides (ed.), Theory Of Valuation, chapter 8, pages 229-288, World Scientific Publishing Co. Pte. Ltd..
    2. Claudio Borio & Mathias Drehmann, 2011. "Toward an Operational Framework for Financial Stability: “Fuzzy” Measurement and Its Consequences," Central Banking, Analysis, and Economic Policies Book Series, in: Rodrigo Alfaro (ed.),Financial Stability, Monetary Policy, and Central Banking, edition 1, volume 15, chapter 4, pages 063-123, Central Bank of Chile.
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    More about this item

    Keywords

    risks; financial stability; central bank;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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