A financial system comprises institutional units and markets that interact for the purpose of mobilising funds for investment and providing facilities including payment systems, for the financing of commercial activity. On one hand, the primary role of financial institutions-units in the system is to intermediate between those that provide funds and those that need the funds, typically transforming and managing risk. On the other hand, financial markets provide a forum within which financial claims can be traded under established rules of conduct.
To effectively contribute and foster sustainable economic development, it is essential to have a stable and efficient financial system. In this regard, the Financial Stability function of Bank of Zambia endeavors to achieve a financial system that is resilient to shocks and is able to smoothly conduct its core tasks of:
- Intermediation of financing;
- Transmission of payments;
- Pricing of instruments and;
- Redistribution of risks appropriately.
The attainment of financial stability requires the effective design, use and communication of macro prudential policies. The primary, use of prudential tools is to limit systemic risks by strengthening the resilience of the financial system and decreasing the build-up of vulnerabilities, thereby ensuring a sustainable contribution of the financial sector to economic growth. Systemic risk is the risk of disruptions to the provision of financial services that is caused by an impairment of all or parts of the financial system. Systemic risk can cause serious negative consequences for the real economy.
The Bank of Zambia has the mandate of maintaining financial system stability. The bank aims to enhance micro and macro supervision in order to manage risks and ensure that the financial sector remains resilient to shocks and supports the country's economic goals. A stable and resilient financial system is essential for sustainable growth.