charles s r chuka : review of the financial sector in malawi address by mr charles s r chuka, governor of the reserve bank of malawi, at the guest of honour at the inauguration of cdh house, blantyre, 24 june 2014. * * * protocol mr franklin kennedy, chairman of the board of directors of cdh investment bank ( cdhib ) and your fellow directors mr misheck esau, chief executive officer, management and staff of cdhib dr grant kabango, deputy governor, supervision mr eldin mlelemba, director of bank supervision and officials from the reserve bank of malawi distinguished invited guests, ceo ’ s of banks, private and public institutions blantyre city chief executive officer mr ted nandolo ward counsellor, counsellor noel chalamanda the officiating clergy director of ceremonies, mr benedicto malunga members of the press ladies and gentlemen i wish to begin by thanking you chairman and the board for inviting me to perform the honourable task of inaugurating the cdh house. taking tour of the building convinced me that you mean business, that you intend to grow your bank and to be a significant player in contributing to the economic growth of this country. indeed, the transformation from a discount house which operated for fourteen years to a bank in april 2012 is a remarkable achievement. i recall in 1998, when we licensed continental discount house, there had not been such a financial institution before. however, in view of the need that the central bank saw in the market, we found room in the banking laws to license a discount house. the need was to encourage the trading of financial instruments such as treasury bills and others. at the time money market investors were not able to access liquidity from their investments in financial instruments before maturity. with the licensing of continental discount house then, now cdhib, a platform was created for a secondary market in financial instruments to develop. the institution, as we were shown today through the displays, not only traded government financial instruments, but also originated other financial instruments such as commercial paper, negotiable promissory notes, corporate medium term notes and bonds. it is pleasing to note the amount of work that the institution performed in the capital market. in the displays, we saw the milestones in equity issues in various forms such as bonus issues, rights issues and the listing of shares on the malawi stock exchange. it is very clear that the foundation to becoming an investment

liquidity support gives banks unlimited access to central bank money at a fixed price against adequate collateral. to make it fully flexible and facilitate banks in their attempt to liquefy their assets at times of stress, we expanded the set of eligible assets that can be used as collateral. furthermore, in order to give banks sufficient reassurance that access to liquidity will not be a problem over a relevant planning horizon we have extended the maturity of our lending. the longest maturity of our long - term refinancing operations ( ltros ) has been raised from the standard 3 months before the crisis to 6 months after the post - lehman cataclysm, to one year by mid - 2009, and to three years at the end of 2011. see i. schnabel and h. s. shin ( 2004 ), “ liquidity and contagion : the crisis of 1763 ”, journal of the european economic association, vol. 2 ( 6 ), pages 929 – 968, december. bis central bankers ’ speeches more recently, we have announced the outright monetary transactions ( omts ), in order to eliminate the pricing of un - warranted tail risks in the bond markets. omts entail interventions in government bonds with a remaining maturity of up to three years. omts have a number of characteristics : they require the government concerned to accept a programme involving support by the european stability mechanism that entails strong and effective conditionality. such conditionality is important in particular to preserve monetary policy independence. interventions would be ex ante unlimited, which is essential to ensure their effectiveness. all interventions would be sterilised so as to ensure that there is no impact from these measures on the overall monetary policy stance. there would be transparency as the stock of securities acquired under the omt programme would be published regularly, together with the average duration. like previous non - standard liquidity operations, omt cope with extraordinary risk premia that markets require when self - fulfilling expectations of catastrophic events prevail. in 2008, the dominant fear had originated from the collapse of the payment system following the lehman bankruptcy. in the first half of 2012, the prevailing fear had been caused by unfounded doubts about the continued existence of the euro. there is another parallel between our early liquidity operations with banks and omts. in providing liquidity to our banking counterparties, we cannot and do not want to subsidise banks that are failing. our liquidity support is not and should