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September 18, 2020
ECONOMY FINANCE&BANKING

Central bank keeps legislative instability among risks to financial stability, yet downgrades it

In its latest Report on Financial Stability the National Bank of Romania (BNR) maintains legislative instability among the risks, yet places it in the ‘moderate, declining’ category, central bank governor Mugur Isarescu on Thursday told the conference for the presentation of the respective Report.

“In the current report you will see that the risk of instability is maintained, it won’t easily diminish, because it stays in the people’s minds. When you venture into such legislative changes that regard the legal foundations established thousands of years ago – and this is no exaggeration – by the Romans, of course the public maintains a certain unpredictability. We don’t know what will happen in Romania in the coming period, so that’s why we kept this risk, but entered it at the ‘moderate, declining’ risk category,” Isarescu said.

He added that BNR cautioned last year against this risk, referring in this context to the Debt discharge Law and the Law on the conversion of Swiss franc loans, but that the risks are now diminished.

Isarescu said that basically, the report presents the risks to financial stability, and that such a presentation has become a current task for the central banks, but that he has noticed a certain confusion in the presentation of risks.

“There is no contradiction between having a good macroeconomic situation and having at the same time risks to financial stability. They are almost connected. For example, just like when you drive at higher speed, when you grow faster, risks grow at a faster pace too. I do not know if this is the best comparison, but it is a working example. Secondly, it is our duty, as per law and per the responsibility of the Macrostability Committee, to monitor these risks and notify them. This does not mean we want to scare the population. If you talk about the risk of a tornado, it doesn’t mean you are effectively in this situation, it does not mean you spread the scare, on the contrary, it helps mitigate the negative effects that risk may have. And also, if we mention a risk, this doesn’t mean it must necessarily materialize,” Isarescu said.

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