THE ARAB MONETARY FUND ISSUES "GENERAL GUIDELINES ON HOW CENTRAL BANKS DEAL WITH THE CONSEQUENCES OF NATURAL DISASTERS AND CLIMATE CHANGES ON THE BANKING SYSTEM AND FINANCIAL STABILITY"

by **claud39** Tue Jun 23, 2020 4:35 pm

THE ARAB MONETARY FUND ISSUES "GENERAL GUIDELINES ON HOW CENTRAL BANKS DEAL WITH THE CONSEQUENCES OF NATURAL DISASTERS AND CLIMATE CHANGES ON THE BANKING SYSTEM AND FINANCIAL STABILITY"

2020-06-22

The guiding principles include many aspects of financial stability issues, most notably:

Development of natural disaster management governance within the central bank

Adopting a strategic partnership between the Central Bank and the agencies concerned with the environment and natural disasters

Develop plans to ensure the continued operation of the core central systems

Preparing stressful tests that include the potential impact of natural disasters and climate changes on the banking and insurance sectors

Study and analysis of the impact of the transition from carbon-intensive products to low-carbon products

Follow-up and evaluation of systemic risks arising from climatic changes and studying their sectoral impact

Within the framework of the Arab Monetary Fund’s keenness to provide support and technical advice to its member states in the field of economic, financial and monetary reforms in order to enhance financial stability in the Arab region, the Fund issued “ general guidelines on how central banks deal with the repercussions of natural disasters and climate changes on the banking system and financial stability . "

The guiding principles included a set of recommendations related to the central bank policy and strengthening the system of natural disasters and climate change, as it stressed the importance of the central bank to continue to strengthen the risk management policy, including the implications of climate changes and natural disasters and how to deal with them, in addition to emphasizing the importance of forming a committee specialized in disaster management Natural (or adding disaster management to the jurisdiction of the Crisis Management Committee) within the central bank, specifying the tasks and responsibilities assigned to it, including preparing hedging plans to achieve recovery to return to work normally.

On the other hand, the guiding principles emphasized the necessity of preparing a cooperation pact that organizes coordination and exchange of information between the central bank and research institutions and centers concerned with the environment and natural disasters within the framework of a strategic partnership, enabling the central bank to provide the expectations of these bodies and centers on the possibilities of occurrence or recurrence of natural disasters of various kinds, With the aim of better preparation and advance - by the central bank - to develop policies to deal with the repercussions of those disasters on the financial and economic systems.

Principles also recommended the importance of the central banks to develop and update plans to ensure the continuity of the work of the core central systems, as a momentary settlement ( RTGS ) and payments via SWIFT (network of the SWIFT ), and systems management of investment portfolios, and debt issues, and reserves of foreign currency, and open market operations, identify and analyze risks Payments systems may be exposed to during natural disasters, while taking necessary measures to confront and deal with them, in a manner that preserves the operations and activities of the central bank and the banking sector to fulfill their domestic and international obligations.

On the other hand, the guiding principles emphasized the need for the Central Bank to issue instructions and guidelines for the financial sector that organize the required measures and preparations, including the minimum required by the financial sector in relation to dealing with natural disasters.

In this context, the principles also touched on the need for the central bank and the financial sector to continue developing stressful tests that include progressive severity hypotheses, and the potential impact of natural disasters and climate change on the banking and insurance sectors.

On the other hand, the principles stressed the importance of assessing and analyzing the so-called potential “shift risks” resulting from the loss of investments in value as a result of combating climate change or shifting the priorities of consumers and investors to environmentally friendly products and technologies, with a call to include stress tests assumptions related to the risks of transformation. The principles also indicated the importance of studying and analyzing the impact of the transition from carbon-intensive products / services to low-carbon products / services, and the impact of this on the sectors concerned, and adopting policies to study and address negative impacts on sectors that may be affected by this transformation.

The principles also touched on many aspects of issues related to the consequences of natural disasters and climate change, such as including the tasks of managing financial stability in the central bank, responsibility for monitoring and assessing systemic risks arising from climate changes, and studying their impact on a number of sectors such as individuals, companies, real estate, and industry , And trade. The principles also called for the management of banking supervision in the central bank, to assess the extent of readiness, plans and preparations of banks to face any possible climatic event. The same is the case with the Insurance Supervision Department with regard to insurance companies, in addition to assigning the external auditor to assess this availability.

In this context, His Excellency Dr. Abdul Rahman bin Abdullah Al Hamidi, Director General of the Chairman of the Arab Monetary Fund, expressed his pleasure to issue guidelines on how central banks deal with the repercussions of natural disasters and climate changes on the banking system and financial stability, where the issuance of these principles comes to emphasize Maintaining financial stability in the Arab countries is considered one of the priorities of the central banks and Arab monetary institutions, given the close financial stability linked to economic and social stability in the countries. His Excellency also wished to protect our dear Arab countries and the countries of the world from all natural disasters.

To view the "Guiding Principles on how central banks deal with the consequences of natural disasters and climate changes on the banking system and financial stability", please go to the website of the Arab Monetary Fund at the following link:

https://www.amf.org.com/en/papers/amf-climate-guidance-central-banks

https://www.amf.org.ae/ar/papers/amf-climate-guidance-central-banks

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