Bangladesh Bank
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Overview: Financial Stability Department

The Financial Stability Department (FSD) of Bangladesh Bank plays a vital role in maintaining financial stability and supporting sustainable economic growth. By identifying, monitoring, and addressing systemic risks, FSD ensures the resilience of the financial system. The department applies a wide range of macroprudential tools and risk-monitoring frameworks to detect and mitigate vulnerabilities while conducting regular assessments of both domestic and global risks to financial stability.

A. What FSD Does

  • Monitors and evaluates the overall stability of the financial system.
  • Identifies and quantifies systemic risks and vulnerabilities, providing policy advice to safeguard stability.
  • Designs and conducts stress tests to assess banking sector resilience and potential spillover risks to the real economy.
  • Analyzes risks in payment, clearing, and settlement systems to limit systemic exposure.
  • Reviews vulnerabilities in insurance, capital markets, and other non-bank financial institutions.
  • Publishes reports — annual, quarterly, and other periodicals.
  • Recommends and oversees macroprudential regulations to manage systemic risks.
  • Coordinates with national and international regulators to enhance system-wide resilience.

B. Key Tools and Stability Assessments

To evaluate systemic risks, FSD employs several specialized tools:

  1. Financial Projection Model (FPM): Forecasts banking sector performance under favorable, baseline, and adverse scenarios.
  2. Interbank Transaction Matrix (ITM): Tracks interconnected exposures and contagion risks among banks and financial institutions.
  3. Domestic Systemically Important Banks (D-SIBs): Identifies critical banks whose failure may endanger the system.
  4. Central Database for Large Credit (CDLC): Monitors concentration risks among large borrowers, serving as an early warning system.
  5. Bangladesh Systemic Risk Report (BSRR): Biannual report assessing seven categories of systemic risks, including credit, liquidity, and structural vulnerabilities.
  6. Composite Financial Stability Index (CFSI): A consolidated measure of macro-financial stress across economic and financial indicators.
  7. Financial Stability Map (FSM): Provides an annual, holistic overview of risks across the economy and financial system.
  8. Stress Testing Tools: Regular micro stress tests, as well as specialized macroprudential and climate-related stress tests, to evaluate resilience under different scenarios.

C. Coordination & Policy Actions

To strengthen oversight and prevent systemic crises, FSD leads and participates in:

  • Financial Stability Committee (FSC): Chaired by the Governor, meets quarterly to review stability risks and policy responses.
  • Coordination Council Technical Group (CCTG): Enhances technical cooperation to the Coordination Council — a regulators’ forum chaired by the Governor of BB, with BSEC, IDRA, MRA, BTRC, RJSC, FRC, and the Department of Cooperatives.

D. Reports and Periodicals

FSD regularly shares analysis and insights with policymakers, regulators, and the public through:

  • Financial Stability Report (FSR)
  • Quarterly Financial Stability Assessment Report (QFSAR)
  • Bangladesh Systemic Risk Report (BSRR)
  • Composite Financial Stability Index (CFSI)
  • Other research and analytical reports