Assigning Financial Stability Role to Central Banks: The Case of Bank of Sierra Leone

Mamoud Abdul Jalloh

doi:doi:10.11648/j.ijefm.20231103.17

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Assigning Financial Stability Role to Central Banks: The Case of Bank of Sierra Leone

Mamoud Abdul Jalloh

Published in International Journal of Economics, Finance and Management Sciences (Volume 11, Issue 3)

Received: 14 April 2023 Accepted: 16 May 2023 Published: 29 May 2023

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Abstract

After the great financial crisis of 2007/8 and its contagious effects on economies across the world, many countries including Sierra Leone began focusing more attention on their financial systems stability. The key question for policy makers was which institution could be best assigned the financial stability role, given the current institutional arrangement? This paper attempts to present a clear case on why the Bank of Sierra Leone was best suited for financial stability role as enshrined in the Bank of Sierra Leone Act 2019 and the level of framework necessary for the effective execution of this new objective. In addition, Calvo et al (2018) revealed that of the jurisdictions surveyed, 78 percent allocated financial stability responsibility solely to their central banks, and increasing number of jurisdictions have dedicated inter-agency committee in which the central bank plays an important role. Interestingly, for the case of the West African Monetary Zone (WAMZ) region, the central banks are solely responsible for financial stability and prudential guidelines. From the analysis, we also discovered that while the current institutional arrangement may not be sufficiently adequate for sound financial stability implementation, the process of developing a strong financial stability framework was at an advanced stage. The study thus concludes that assigning this role to the Bank of Sierra Leone was the right move as it was already charged with banks’ prudential guidelines and no other institution in Sierra Leone was better placed for it. The study therefore recommends the need for more financial sector reforms to mitigate risks emanating from financial imbalances and destabilising interaction among various key markets, payment and financial institutions.

Published in	International Journal of Economics, Finance and Management Sciences (Volume 11, Issue 3)
DOI	10.11648/j.ijefm.20231103.17
Page(s)	139-144
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2023. Published by Science Publishing Group

Keywords

Financial Stability, Macro Prudential, Framework, Monetary Policy, Financial Crisis

References

[1]	Mohan, R and Kapur, M (2014). Monetary Policy Coordination and the Role of Central Banks. IMF Working Paper.
[2]	Haldane, A. G, Hoggarth, G, Saporta, V and Sinclair, P. (2004). Financial Stability and Bank Solvency, Federal Reserve Bank of Chicago International Conference, Chicago, Illinois, 30 September 2004.
[3]	Restoy, F (2020). Central banks and financial stability: A refection after the Covid 19 outbreak. Financial stability Institute Occasional Paper No 16.
[4]	The Bank of Sierra Leone Act, 2019.
[5]	Hannoun, H (2010). Towards A Global Financial Stability Framework. 45th SEACEN Governors’ Conference. Siem Reap province, Cambodia, 26–27.
[6]	Allen N. Berger & Rebecca Demsetz & Philip E. Strahan (1998). "The consolidation of the financial services industry: causes, consequences, and the implications for the future," Staff Reports 55, Federal Reserve Bank of New York.
[7]	Laeven, L., and F. Valencia, (2013). Resolution of Banking Crises: The Good, the Bad, and the Ugly, in S. Claessens, M. A. Kose, L. Laeven, and F. Valencia, eds., Financial Crises, Consequences, and Policy Responses, forthcoming. (also issued as “Resolution of Banking Crises: The Good, the Bad, and the Ugly,” IMF Working Paper, No. 10/146.)
[8]	Crotty, J (2009). Structural causes of the global financial crisis: a critical assessment of the ‘new financial architecture’ Cambridge Journal of Economics, Volume 33, Issue 4, July 2009, Pages 563–580, https://doi.org/10.1093/cje/bep023
[9]	Calvo, D, Crisanto J. C, Hohl S and Gutierrez, O. P (2018). Financial supervisory architecture: what has changed after the crisis? FSI Insights on policy implementation, no 8, April.
[10]	Huang, J.-C., Lin, H.-C. (2021). Country risk and bank stability, Romanian Journal of Economic Forecasting, 24 (3), 72-96.
[11]	West African Monetary Institute. Financial Stability Report 2021.
[12]	Johnson, L. N (2022) Basel III in Sierra Leone: Delivering on it. Journal of Economics & Management Research. SRC/JESMR-173. DOI: doi.org/10.47363/JESMR/2022(3)155.
[13]	Johnson, O. E. G (2011). Financial Sector Reform and Development in Sierra Leone, IGC Working paper 11/0560.
[14]	Demirguc-Kunt, A., and Levine, R. (2008). Finance, financial sector policies, and long-run growth. Working Paper 11, Commission on Growth and Development.
[15]	Bordo, M, Dueker, M and Wheelock, D (2000). Aggregate Price Shocks and Financial Instability: A Historical Analysis, Federal Reserve Bank of St Louis, working paper, no 2000-005B.
[16]	Cao, J and L Cholletec (2017): Monetary policy and financial stability in the long run: a simple game-theoretic approach, Journal of Financial Stability, vol 28, February, pp 125–42.
[17]	Johnson, L (2022). Banking Sector Stability in Sierra Leone: An Econometric Analysis, International Journal of Scientific Research and Management (IJSRM), 10 (5). DOI: 10.18535/ijsrm/v10i5.em06.
[18]	Caruana, J (2014). The role of central banks in macroeconomic and financial stability BIS Papers, No 76.

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Mamoud Abdul Jalloh. (2023). Assigning Financial Stability Role to Central Banks: The Case of Bank of Sierra Leone. International Journal of Economics, Finance and Management Sciences, 11(3), 139-144. https://doi.org/10.11648/j.ijefm.20231103.17

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Mamoud Abdul Jalloh. Assigning Financial Stability Role to Central Banks: The Case of Bank of Sierra Leone. Int. J. Econ. Finance Manag. Sci. 2023, 11(3), 139-144. doi: 10.11648/j.ijefm.20231103.17

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Mamoud Abdul Jalloh. Assigning Financial Stability Role to Central Banks: The Case of Bank of Sierra Leone. Int J Econ Finance Manag Sci. 2023;11(3):139-144. doi: 10.11648/j.ijefm.20231103.17

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@article{10.11648/j.ijefm.20231103.17,
  author = {Mamoud Abdul Jalloh},
  title = {Assigning Financial Stability Role to Central Banks: The Case of Bank of Sierra Leone},
  journal = {International Journal of Economics, Finance and Management Sciences},
  volume = {11},
  number = {3},
  pages = {139-144},
  doi = {10.11648/j.ijefm.20231103.17},
  url = {https://doi.org/10.11648/j.ijefm.20231103.17},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijefm.20231103.17},
  abstract = {After the great financial crisis of 2007/8 and its contagious effects on economies across the world, many countries including Sierra Leone began focusing more attention on their financial systems stability. The key question for policy makers was which institution could be best assigned the financial stability role, given the current institutional arrangement? This paper attempts to present a clear case on why the Bank of Sierra Leone was best suited for financial stability role as enshrined in the Bank of Sierra Leone Act 2019 and the level of framework necessary for the effective execution of this new objective. In addition, Calvo et al (2018) revealed that of the jurisdictions surveyed, 78 percent allocated financial stability responsibility solely to their central banks, and increasing number of jurisdictions have dedicated inter-agency committee in which the central bank plays an important role. Interestingly, for the case of the West African Monetary Zone (WAMZ) region, the central banks are solely responsible for financial stability and prudential guidelines. From the analysis, we also discovered that while the current institutional arrangement may not be sufficiently adequate for sound financial stability implementation, the process of developing a strong financial stability framework was at an advanced stage. The study thus concludes that assigning this role to the Bank of Sierra Leone was the right move as it was already charged with banks’ prudential guidelines and no other institution in Sierra Leone was better placed for it. The study therefore recommends the need for more financial sector reforms to mitigate risks emanating from financial imbalances and destabilising interaction among various key markets, payment and financial institutions.},
 year = {2023}
}

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TY  - JOUR
T1  - Assigning Financial Stability Role to Central Banks: The Case of Bank of Sierra Leone
AU  - Mamoud Abdul Jalloh
Y1  - 2023/05/29
PY  - 2023
N1  - https://doi.org/10.11648/j.ijefm.20231103.17
DO  - 10.11648/j.ijefm.20231103.17
T2  - International Journal of Economics, Finance and Management Sciences
JF  - International Journal of Economics, Finance and Management Sciences
JO  - International Journal of Economics, Finance and Management Sciences
SP  - 139
EP  - 144
PB  - Science Publishing Group
SN  - 2326-9561
UR  - https://doi.org/10.11648/j.ijefm.20231103.17
AB  - After the great financial crisis of 2007/8 and its contagious effects on economies across the world, many countries including Sierra Leone began focusing more attention on their financial systems stability. The key question for policy makers was which institution could be best assigned the financial stability role, given the current institutional arrangement? This paper attempts to present a clear case on why the Bank of Sierra Leone was best suited for financial stability role as enshrined in the Bank of Sierra Leone Act 2019 and the level of framework necessary for the effective execution of this new objective. In addition, Calvo et al (2018) revealed that of the jurisdictions surveyed, 78 percent allocated financial stability responsibility solely to their central banks, and increasing number of jurisdictions have dedicated inter-agency committee in which the central bank plays an important role. Interestingly, for the case of the West African Monetary Zone (WAMZ) region, the central banks are solely responsible for financial stability and prudential guidelines. From the analysis, we also discovered that while the current institutional arrangement may not be sufficiently adequate for sound financial stability implementation, the process of developing a strong financial stability framework was at an advanced stage. The study thus concludes that assigning this role to the Bank of Sierra Leone was the right move as it was already charged with banks’ prudential guidelines and no other institution in Sierra Leone was better placed for it. The study therefore recommends the need for more financial sector reforms to mitigate risks emanating from financial imbalances and destabilising interaction among various key markets, payment and financial institutions.
VL  - 11
IS  - 3
ER  -

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Author Information

Mamoud Abdul Jalloh

Research and Statistics Department, Bank of Sierra Leone, Freetown, Sierra Leone

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APA Style

Mamoud Abdul Jalloh. (2023). Assigning Financial Stability Role to Central Banks: The Case of Bank of Sierra Leone. International Journal of Economics, Finance and Management Sciences, 11(3), 139-144. https://doi.org/10.11648/j.ijefm.20231103.17

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ACS Style

Mamoud Abdul Jalloh. Assigning Financial Stability Role to Central Banks: The Case of Bank of Sierra Leone. Int. J. Econ. Finance Manag. Sci. 2023, 11(3), 139-144. doi: 10.11648/j.ijefm.20231103.17

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AMA Style

Mamoud Abdul Jalloh. Assigning Financial Stability Role to Central Banks: The Case of Bank of Sierra Leone. Int J Econ Finance Manag Sci. 2023;11(3):139-144. doi: 10.11648/j.ijefm.20231103.17

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@article{10.11648/j.ijefm.20231103.17,
  author = {Mamoud Abdul Jalloh},
  title = {Assigning Financial Stability Role to Central Banks: The Case of Bank of Sierra Leone},
  journal = {International Journal of Economics, Finance and Management Sciences},
  volume = {11},
  number = {3},
  pages = {139-144},
  doi = {10.11648/j.ijefm.20231103.17},
  url = {https://doi.org/10.11648/j.ijefm.20231103.17},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijefm.20231103.17},
  abstract = {After the great financial crisis of 2007/8 and its contagious effects on economies across the world, many countries including Sierra Leone began focusing more attention on their financial systems stability. The key question for policy makers was which institution could be best assigned the financial stability role, given the current institutional arrangement? This paper attempts to present a clear case on why the Bank of Sierra Leone was best suited for financial stability role as enshrined in the Bank of Sierra Leone Act 2019 and the level of framework necessary for the effective execution of this new objective. In addition, Calvo et al (2018) revealed that of the jurisdictions surveyed, 78 percent allocated financial stability responsibility solely to their central banks, and increasing number of jurisdictions have dedicated inter-agency committee in which the central bank plays an important role. Interestingly, for the case of the West African Monetary Zone (WAMZ) region, the central banks are solely responsible for financial stability and prudential guidelines. From the analysis, we also discovered that while the current institutional arrangement may not be sufficiently adequate for sound financial stability implementation, the process of developing a strong financial stability framework was at an advanced stage. The study thus concludes that assigning this role to the Bank of Sierra Leone was the right move as it was already charged with banks’ prudential guidelines and no other institution in Sierra Leone was better placed for it. The study therefore recommends the need for more financial sector reforms to mitigate risks emanating from financial imbalances and destabilising interaction among various key markets, payment and financial institutions.},
 year = {2023}
}

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TY  - JOUR
T1  - Assigning Financial Stability Role to Central Banks: The Case of Bank of Sierra Leone
AU  - Mamoud Abdul Jalloh
Y1  - 2023/05/29
PY  - 2023
N1  - https://doi.org/10.11648/j.ijefm.20231103.17
DO  - 10.11648/j.ijefm.20231103.17
T2  - International Journal of Economics, Finance and Management Sciences
JF  - International Journal of Economics, Finance and Management Sciences
JO  - International Journal of Economics, Finance and Management Sciences
SP  - 139
EP  - 144
PB  - Science Publishing Group
SN  - 2326-9561
UR  - https://doi.org/10.11648/j.ijefm.20231103.17
AB  - After the great financial crisis of 2007/8 and its contagious effects on economies across the world, many countries including Sierra Leone began focusing more attention on their financial systems stability. The key question for policy makers was which institution could be best assigned the financial stability role, given the current institutional arrangement? This paper attempts to present a clear case on why the Bank of Sierra Leone was best suited for financial stability role as enshrined in the Bank of Sierra Leone Act 2019 and the level of framework necessary for the effective execution of this new objective. In addition, Calvo et al (2018) revealed that of the jurisdictions surveyed, 78 percent allocated financial stability responsibility solely to their central banks, and increasing number of jurisdictions have dedicated inter-agency committee in which the central bank plays an important role. Interestingly, for the case of the West African Monetary Zone (WAMZ) region, the central banks are solely responsible for financial stability and prudential guidelines. From the analysis, we also discovered that while the current institutional arrangement may not be sufficiently adequate for sound financial stability implementation, the process of developing a strong financial stability framework was at an advanced stage. The study thus concludes that assigning this role to the Bank of Sierra Leone was the right move as it was already charged with banks’ prudential guidelines and no other institution in Sierra Leone was better placed for it. The study therefore recommends the need for more financial sector reforms to mitigate risks emanating from financial imbalances and destabilising interaction among various key markets, payment and financial institutions.
VL  - 11
IS  - 3
ER  -

Copy | Download