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Country’s reputation ‘as strong as its weakest link’

Central Bank governor says past two years very challenging

Central Bank governor Mario Vella

Central Bank governor Mario Vella

A country’s reputation was only as strong as its weakest link and the impact of each institution was always material in a small financial centre such as Malta, Central Bank governor Mario Vella said.

He stressed that the impact was substantial whether the institution was “big or small, in the periphery or at the core”.

Addressing the annual dinner of the Institute of Financial Services, Dr Vella admitted that, from a supervisory perspective, the past two years had been “very challenging”, referring to the withdrawal of two banking licences, with another put under administration.

He warned that negative externalities could also impact “the use of infrastructural gateways that service the industry, without which, the entire financial sector would be isolated”. He did not elaborate but local banks have been having problems finding correspondent banks to handle cross-currency transactions.

The governor was also un-equivocal about the danger of calls for less regulation when the going was good and bad times seemed remote.

Supervision must remain ongoing

“This temptation must be resisted. We need a balanced view that is stable and fair but also sufficiently rigorous and intrusive irrespective of economic cycles. Otherwise, regulators will keep being found wanting when the bad times come, adversely affecting many ordinary people and feeding mistrust in the authorities,” he said.

“Supervision must remain ongoing to safeguard the system from moral hazard, while keeping the bar sufficiently high to minimise adverse selection at entry point. Practitioners also have a duty of care to their clients and the financial system as a whole. They play a critical role in safeguarding its integrity.”

He encouraged stakeholders “to seize the opportunity to improve the reputation, soundness and resilience” of the financial services sector.

The governor acknowledged that fast economic growth should up economic, social, cultural, political and institutional equilibria.

“It is both an effect of economic, social, cultural, political and institutional disruption and a cause of economic, social, cultural, political and institutional disruption.

“When confronted with this state of affairs – a state of affairs that is admittedly disquieting and unsettling – the worst possible reaction is to retreat into nostalgic denial and to pretend that we are living in temporary blips of disequilibrium, in exceptional situations, that will, at some unspecified point in time, revert to a blissful state of economic, social, cultural, political and institutional equilibria.

“The only reasonable approach is to endeavour tirelessly and to the best of our technical ability to navigate a reality that is complex, characterised by change and prone to crises. Navigating this reality requires us to be constantly vigilant to the risks involved, a task that requires us to understand reality and to deal with it to best of our technical competences,” he concluded.

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