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One of Latvijas Banka's functions is promoting the financial system stability at the macro level.

Financial stability prevails in the economy when the financial system, i.e. financial intermediaries and markets as well as market infrastructures, can withstand shocks and the latter do not significantly distort financial intermediation and the supply of common financial services.

To enhance financial stability, Latvijas Banka analyses and assesses systemic risks to the financial system of Latvia and cooperates with the Financial and Capital Market Commission (FCMC) and the Ministry of Finance. The two institutions, within the scope of their competence, have a major impact on the financial stability in Latvia. Latvijas Banka exchanges relevant information with the above institutions, gives advice on systemic risk assessment and on the measures to be taken to mitigate systemic-level risks and strengthen the resilience of the financial system, while at the same time understanding and having regard to the independence of the FCMC, the Ministry of Finance and Latvijas Banka in decision-making within their respective areas of responsibility.

The FCMC carries out microprudential supervision of particular financial institutions in the country, and it is also empowered to adopt a number of macroprudential requirements provided for in EU legislation. Meanwhile, Latvijas Banka in its capacity as a macroprudential authority provides analytical input and recommendations concerning the assessment, development and implementation of macroprudential requirements. The above requirements aim at promoting the overall resilience of the financial system rather than at supervising individual financial institutions (the macroprudential requirements include, e.g. the countercyclical capital buffer, the capital buffer of other systemically important institutions, the systemic risk buffer, additional liquidity requirements, etc.).

Latvia is a member of the banking union. It is an EU-level banking supervision and resolution system in which the European Central Bank (ECB) also has a role to play in enhancing the financial stability in Latvia. The ECB, in cooperation with the FCMC in Latvia, supervises the so-called important financial institutions and adopts microprudential requirements for them. In addition to the above and with a view to promoting the financial stability, the ECB may also provide for more stringent macroprudential requirements than those set by national authorities.

As a member of the Eurosystem, Latvijas Banka participates in the process of analysing and assessing the euro area financial system stability and in defining opinions and developing policy guidelines in relation to the euro area financial sector stability.

The European Systemic Risk Board (ESRB) is an EU-level macroprudential authority. The ESRB identifies potential systemic risks to the financial system stability in the EU as a whole and in individual Member States. It provides recommendations and/or warnings concerning measures to reduce the above risks and enhance the financial stability. Latvijas Banka is a member of the ESRB and takes part in the risk assessment carried out by the ESRB and in the development of policy guidelines.

Wide-ranging cooperation in the field of financial stability also takes place at the level of the Nordic and Baltic region, i.e. between the central banks, supervisory and resolution authorities as well as ministries of finance within the Nordic-Baltic Cooperation Group. This cooperation is based on the mutual Memorandum of Understanding.

The central banks and supervisory authorities of the region cooperate on macroprudential policy issues within the Nordic-Baltic Macroprudential Forum. They discuss the issues of the assessment of systemic risks to financial stability and measures for their prevention.

Latvijas Banka publishes the Financial Stability Report on an annual basis. The Report contains the analysis of the Latvian financial system development and of systemic risks representing potential threats to the stability of the Latvian financial system.