The fact that entire financial systems may be exposed to common and systemic risks is not always fully taken into account in micro-prudential supervision. The two processes, however, are essential and complementary components of an effective monitoring system for financial stability. Indeed, macro-prudential supervision cannot be meaningful unless it can somehow impact on supervision at the micro-level; while micro-prudential supervision cannot effectively safeguard financial stability without adequately taking account of macro-level developments. An improved domestic framework for macro-prudential supervision should mirror these international developments. Although the stress tests have shown that banks in Malta are for the most part adequately capitalised, they may still need to strengthen their capital buffer to cover Pillar II risks, such as concentration and interest rate risks, once the requirements of the Capital Requirements Directive are fully implemented. The high exposure to property-related loans, which I referred to earlier, represents a potential systemic risk and thus falls within the purview of macro-prudential supervision. The Bank has both a statutory responsibility as well as the necessary expertise for assessing systemic risks. In this context, the importance being given in the global debate to endowing macroprudential regulators with the necessary policy tools beyond what they have now, namely moral suasion, should be echoed domestically. Micro- and macro-prudential supervision should go hand in hand. This would also provide reassurance to the banks, complementing their own efforts to overcome the challenges I have outlined here today.

Following the launch of the first SEPA payment product for credit transfers last year, the transposition of the Payments Services Directive into national law as from November 2009 will support direct debit schemes, thus opening up the possibility of using such instruments in the SEPA area, including Malta. Given its importance for our banking system, the Central Bank of Malta has launched a Consultative Paper on the National Implementation of the Payment Services Directive. Malta stands to gain from SEPA. Along with the benefits of financial market integration, increased competition and scope for innovation, there is also a strong potential to attract e-commerce payment business and payment factory operations for trans-national corporations. BIS Review 65/2009  5  Investing in SEPA should not, therefore, be viewed as an expense, but rather as a business opportunity that will help banks pre-empt competition law problems, reduce costs and expand in new markets. In time, it may also come to offer new and profitable services, such as e-invoicing and reconciliation. For this to happen, the banks must see to it that their customers understand the advantages offered by SEPA and make use of it. The financial crisis has also highlighted the importance of stress tests, which assess an institution’s ability to withstand both institution-specific credit and liquidity risks as well as systemic risks, including adverse macroeconomic conditions. As stated in the Bank’s Financial Stability Report, the latest stress test results show that the banks generally have adequate capital buffers and sufficient liquidity to withstand extreme, yet plausible shocks.