Safeguarding financial stability is the common goal among central banks. The Central Bank of China Act stipulates that prompting financial stability is one of its legal objectives. Generally, price stability contributes to financial stability while financial stability is supplemented by price stability. Monetary policies are effective only when the financial systems are stable. Since 1990s, there have been several financial crises that disturbed international financial market and damaged the global economy. To avoid the damages caused by financial instability, international organizations and many central banks are actively engaging in the establishment of financial stability assessment framework and systemically analyze and monitor the potential risks that may arise either within or outside the financial system.
The CBC stopped carrying out regular full-scope on-site examinations after the establishment of the FSC in July 2004. To further enhance its function of promoting financial stability, the CBC set up the Financial Stability Assessment Section in January 2006, which is subordinate to the Department of Financial Inspection. The CBC compiles the financial soundness indicators based upon the Compilation Guides for FSIs issued by the IMF and builds up the financial stability assessment framework that is consistent with the nature of our financial system, with reference to the IMF, European Central Bank and other central banks’ macro-prudential analytical methodologies. Moreover, the CBC issued its first financial stability report in June 2008.