## _sdn1401

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---

### Role and rationale for macroprudential policy in the GCC
- Macroprudential policy is necessary to include financial stability as a key objective of economic policy, given the vulnerability of GCC economies to credit and asset price cycles.
- In resource-rich countries with fixed exchange rates, interest rate policy is constrained; fiscal policy—particularly government spending, given limited domestic taxation—is the main tool for managing economic cycles, but it is not always flexible enough because of time lags and expenditure rigidities.
- Macroprudential policy should support fiscal policy in managing financial cycles associated with oil prices.

### Key characteristics elevating macroprudential importance
- Heavy reliance on volatile hydrocarbon revenues that drive large swings in government fiscal balances and domestic liquidity.
- Real estate is a major asset class for investment and a common recipient of credit booms.
- Underdeveloped fixed-income and derivatives markets limit liquidity and risk management tools.
- Shortcomings in crisis resolution frameworks.
- Limited monetary policy independence under pegged exchange rates, increasing reliance on fiscal and macroprudential tools.

### Recent experience and systemic vulnerabilities (selected indicators)
- Real annual average credit growth of the GCC banks was 23 percent during 2003–08.
- Private sector credit to non-oil GDP reached 122 percent by end-2008.
- GCC stock markets posted 22–60 percent gains in 2007.
- Credit growth pre-crisis concentrated in construction and real estate; some increased lending for the purchase of securities.
- Crisis reversal in late 2008:
  - Stock markets fell by a combined 41 percent ($400 billion) between September 2008 and end-2008.
  - Real estate prices fell significantly (particularly in Dubai).
  - CDS spreads on sovereign debt widened (more so for Bahrain and Dubai).
  - External funding conditions tightened and fiscal surpluses declined markedly (except in Qatar).

### Monetary constraints, liquidity management, and market depth
- Exchange rate pegs to the U.S. dollar (except Kuwait) and relatively open capital accounts limit room to deviate from U.S. interest rates.
- Central banks’ liquidity management capabilities are limited:
  - Liquidity forecasting is in its infancy.
  - Liquidity absorption relies primarily on reserve requirements and standing facilities (including certificates of deposit).
  - Reserve requirements are described as too inflexible; standing facilities are passive.
  - Monetary transmission is constrained by shallow money markets.
- Domestic fixed income markets are underdeveloped; fiscal surpluses reduce governments’ need to issue debt, constraining liquid money, bond, and derivative markets.

### Real estate prominence, corporate governance, and insolvency
- Real estate lending significant in Kuwait, Qatar, and the United Arab Emirates.
- Enforcement of collateral rights weak.
- Disclosure requirements often limited; group entities not fully visible; corporate and personal assets not always separated.
- Insolvency regimes and crisis resolution frameworks are often ineffective:
  - Court processes slow, procedures expensive, recovery rates low.
  - Qatar, the United Arab Emirates, and Saudi Arabia report very low usage of bankruptcy systems.
- Implicit deposit insurance schemes provide de facto full guarantees; expectation that banks are “not allowed to fail” weakens market discipline.

### Pre-2008 macroprudential instruments and effectiveness
- Instruments used: capital, provisioning, liquidity requirements; ceilings on personal loans; limits on exposure.
- Capital, provisioning, liquidity:
  - Fixed general provisions common; dynamic/countercyclical measures generally absent except Saudi Arabia (provisioning ratio of 100 percent of NPLs, raised to 200 percent at height of cycle).
  - Kuwait, Oman, Qatar, and the United Arab Emirates adjusted general provisioning after the crisis.
  - UAE planned to raise general provisions to 1.5 percent by 2014.
- Ceilings on personal loans:
  - Debt-service-to-income caps common except in Oman and Kuwait.
  - Caps on monthly repayments range between 33 percent (Saudi Arabia) and 50 percent (Bahrain, Qatar, United Arab Emirates).
  - UAE set a ceiling on total amount of personal loans; Oman has no such ceiling.
  - Qatar imposed differential ceilings for nationals and expatriates.
- LTV ratios uncommon: only Qatar and Saudi Arabia took explicit LTV measures; business practices elsewhere resulted in LTVs around 80 percent.
- Limits on exposures:
  - Loan-to-deposit (LTD) ratios ranged from 60 percent in Bahrain to 90 percent in Qatar.
  - UAE bars loans that exceed stable resources.
  - Limits on real estate exposure in place in all countries other than Kuwait and Saudi Arabia.
  - Limits on foreign exchange risk uncommon; only Oman and Qatar cap foreign currency lending and FX positions. Kuwait requires FX loans only to borrowers with FX cash flows.
- Pre-2008 measures often late and undermined by exceptions:
  - Retail loans constituted 30 percent or more of banks’ total loan portfolios in Bahrain, Kuwait, and Oman in 2008.
  - LTD ratios did not sufficiently slow credit growth because deposits expanded rapidly: average annual real growth in credit to the private sector during 2003–08 ranged between 17 percent for Oman to 35 percent for Qatar.
  - Definitions of real estate exposures often understated actual exposure.

### Institutional and analytical priorities
- Institutional recommendations:
  - Give central banks the formal mandate to ensure financial stability.
  - Develop a formal and transparent macroprudential institutional and policy framework clarifying responsibilities and coordination.
  - Establish formal coordination mechanisms (e.g., financial stability committee or council).
- Analytical priorities:
  - Develop effective early-warning systems (EWS) combining quantitative and qualitative indicators.
  - Integrate macro stress testing as part of systemic surveillance.
  - Establish well-staffed macroprudential units within entities in charge of macroprudential supervision.
- Suggested EWS indicators:
  - Macro aggregates and forecasts (domestic, external, sectoral imbalances).
  - Leverage ratios in financial, corporate, and household sectors.
  - Foreign borrowing by sector by maturity and instrument.
  - Real estate and equity market indicators.
  - Domestic credit growth indicators.
  - Banks’ sectoral exposures.
  - Liquidity and funding practice indicators.
- Country progress examples:
  - UAE FSU developing a stress index and EWS dashboard.
  - Oman FSU developing a key-variables database.
  - Qatar has a real estate price index in its EWS.
  - Saudi Arabia strengthening off-site surveillance and developing its EWS.

### Recommendations to refine the macroprudential toolkit
- Build and maintain sizeable capital buffers:
  - Ensure banks maintain higher capital than minimum international standards.
  - Most GCC banks target capital levels between 15 and 20 percent.
  - Existing minimum regulatory requirements range from 8 percent (Saudi Arabia) to 12 percent (Bahrain, Kuwait, United Arab Emirates).
  - Basel III changes: Saudi minimum would change to 10.5 percent by 2019; SAMA maintains a higher effective capital ratio requirement than regulatory minimum.
  - High share of Tier 1 capital in GCC banks is a mitigating factor.
- Develop countercyclical capital buffers with appropriate indicators and supervisory judgment.
- Use provisioning rules for macroprudential purposes:
  - Dynamic provisioning faces calibration challenges; general provisions remain useful.
  - Saudi Arabia’s provisioning practice: 100 percent of NPLs (up to 200 percent during cycle).
  - Some countries raised general provisions post-crisis (Kuwait, Qatar, UAE).
- Restrict dividend distributions in good times to build capital buffers:
  - Examples: mandated buildup of general reserves in Kuwait and Saudi Arabia; UAE restricted dividend distribution to build buffers.
- Dampening credit and asset price booms:
  - Move toward risk-based supervision and enhance Pillar 2 supervisory review linked to the cycle.
  - Use time-varying LTD ratios (lower ratios in upswings) to slow credit growth even as deposits rise; design carefully to avoid perverse incentives (e.g., weight deposits by maturity).
  - Adopt appropriately calibrated, time-varying LTV ratios for real estate and DTI ratios for retail lending; mortgage market nascent—LTV limits will become more important as mortgages expand.
  - Address compensation design: link performance pay to longer-horizon risk measures and back-load pay-offs to reduce short-term risk taking.
- Support liquidity management:
  - Develop domestic interbank money and debt markets.
  - GCC regulators developing liquidity risk regulations to comply with Basel III requirements.
  - Potential measures to limit foreign funding risks: higher reserves for short-term foreign liabilities; limits on foreign currency lending; calibrated liquidity requirements matching maturity of liabilities to assets.
- Enhance structural reforms:
  - Modernize insolvency regimes.
  - Strengthen crisis management and resolution systems.
  - Strengthen credit reporting systems (private credit bureaus introduced recently).
  - Improve corporate governance, disclosure standards, and risk management practices.

### Framework elements for an effective macroprudential policy
- A robust framework should include:
  - A system of early warning indicators signaling increased vulnerabilities.
  - A set of policy tools to contain risks beforehand, address vulnerabilities early, and build buffers to absorb shocks.
  - An institutional framework ensuring effective implementation.
- GCC central banks should strengthen macroprudential analysis and operational capacity through formal mandates and dedicated units.

### Empirical and international evidence on property measures (Box 2 highlights)
- Empirical studies:
  - LTV caps decelerate property price growth; both LTV and DTI caps slow property lending growth.
  - Ahuja and Nabar (2011): LTV caps strengthen bank capital buffers and performance in pegged exchange rate/currency-board economies; LTV caps lower NPLs; LTV and DTI used more frequently in fixed exchange rate and currency board economies.
- Hong Kong SAR and Singapore experience:
  - Hong Kong SAR: changes to LTV and DTI caps since 2009; Special Stamp Duty; residential property price inflation appears to fall about two years after LTV changes; tightening had little effect on total mortgage lending.
  - Singapore: LTV cap lowered from 90 percent to 40 percent in some cases since 2009; Special Stamp Duty extended/increased; price growth slowed sharply in late 2011.

### Property market and sectoral exposure guidance for the GCC
- Real estate exposure definition should include all financing activities where repayment depends on real estate or collateral; Qatar broadened its definition in 2011.
- Trade-off: conservative definition contains exposure but may restrict lending to sectors (e.g., SMEs) that rely on real estate as collateral; recommendation to develop movable collateral frameworks.
- Real estate regulation should ensure a level playing field between Shariah-compliant and conventional banks; note high real estate exposure of Shariah-compliant banks and allowance to hold equity-like real estate exposures.
- Large exposure limits should be redefined and strictly enforced; consider aggregate limits to borrower types (e.g., contemplated aggregate limits on lending to GREs in the UAE).

### Annex I — Selected macroprudential instruments (high-level)
- Risk measurement: cycle-calibrated bank measures; cyclical conditionality in supervisory ratings; supervisory measures of systemic vulnerability.
- Financial reporting: less procyclical accounting standards; dynamic provisions; prudential filters; enhanced disclosures.
- Regulatory capital: systemic capital surcharge; cycle-dependent multipliers; Pillar 2 linkage to cycle.
- Funding liquidity standards: cyclically dependent requirements; concentration limits; FX lending restrictions; open FX position limits.
- Collateral: time-varying LTVs; conservative valuation; through-the-cycle margining.
- Risk concentration: quantitative limits to growth of exposure types; time-varying interest rate surcharges for loan types.
- Other tools: compensation schemes, profit distribution restrictions, resolution instruments.

### Annex II — Selected country-specific macroprudential figures (highlights)
- Bahrain:
  - Leverage ratios (capital to assets): 5% for retail banks and 10% for wholesale banks.
  - Reserve requirements: 5% of total deposits.
  - Limits on real estate exposure: 30% cap on real estate lending as share of total bank lending.
  - DTI: Maximum debt service ratio of 50% of monthly salary.
  - LTD: Voluntary 60-65% for most banks and 70-75% for those without large investments outside loans.
  - Liquidity requirements: 25%, Liquid assets/total assets.
  - Large exposure limit: 15% of regulatory capital.
- Kuwait:
  - General provisions: Fixed level: 1% of cash items & 0.5% of non cash items.
  - Reserve requirements: No.
  - LTVs: residential loans for vacant plots 50% of cost; 60% if existing home; 70% if new building to be constructed.
  - LTD: maximum available funding with maturity-tiered limits: up to 3 months: 75%; 3 months–1 year: 90%; >1 year: 100%.
  - Liquidity requirements: 18%, Liquid assets/domestic currency customer deposits.
  - Large exposure: 15%; aggregate large exposures limit no more than 400%.
- Oman:
  - General provisions: Fixed: 2% of outstanding performing 'personal loans' and 1% of outstanding performing 'other loans.'
  - Reserve requirements: 5%.
  - Limits on real estate exposure: 60% of bank net worth or 60% of all time and savings deposits other than government and inter-bank deposits, whichever is higher.
  - LTD: 87.5%.
  - Large exposure: 15%.
- Qatar:
  - General provisions: 1.5%.
  - Reserve requirements: 4.75%.
  - Limits on real estate exposure: conventional banks: real estate lending not to exceed 150% of bank's capital and reserves (Tier 1); Islamic banks: investment in real estate not exceed 25% of capital and reserves.
  - LTVs: 70% for individuals, 60% for commercial companies.
  - DTI: Credit to individuals capped at 50% of monthly salary and allowances, not to exceed QR 2.5 million per person.
  - LTD: 90% for credit ratio.
  - Liquidity requirements: 100%, Current assets/liabilities weighted by liquidity characteristics.
  - Caps on foreign currency lending: lending to non-residents in foreign currency abroad limited to 5% of net worth.
  - Large exposure: single borrowing group max 20% of bank capital and reserves; total credit facilities at 10%+ must not exceed 600% of bank capital and reserves; related parties must not exceed 100% of bank capital and reserves.
- Saudi Arabia:
  - General provisions: 1.5% (gradually being raised to 1.5% of credit risk weighted assets that do not have a specific provision).
  - Reserve requirements: 7% on demand deposits; 4% on time and saving deposits.
  - LTVs: For real estate finance companies LTV of 70%.
  - DTI: Total monthly repayments should not exceed 33% of salary.
  - LTD: 85%.
  - Liquidity requirements: 20%, Liquid assets/deposits. SAMA introduced Basel LCR and NSFR since January 2012.
  - Large exposure: legal limit 25%; in practice 15%.
- United Arab Emirates:
  - General provisions: Fixed level: 1%.
  - Reserve requirements: 14% for demand deposits; 1% for time deposits.
  - Limits on real estate exposure: 20% of deposits. Current definition covers loans for construction of commercial and residential buildings.
  - DTI: Borrowing limits for personal loans: (i) 20 times salary or monthly income; (ii) loan tenor 48 months; (iii) debt-service ratio 50% of monthly salary.
  - LTD: Max 100% for the Advances to Stable Resources Ratio.
  - Liquidity requirements: Basel III-type regulation pending.
  - Large exposure: 25% for commercial public sector entities; 7% for private sector and individuals.

*Source: _sdn1401 (IMF) — extracted content from the supplied PDF content unit.*

### EXECUTIVE SUMMARY ___________________________________________________________________________  4

### _sdn1401 - EXECUTIVE SUMMARY ___________________________________________________________________________  4

### Role and rationale for macroprudential policy in the GCC
- Macroprudential policy is necessary to include financial stability as a key objective of economic policy, given the vulnerability of GCC economies to credit and asset price cycles.
- In resource-rich countries with fixed exchange rates, interest rate policy is constrained; fiscal policy—particularly government spending, given limited domestic taxation—is the main tool for managing economic cycles, but it is not always flexible enough because of time lags and expenditure rigidities.
- Macroprudential policy should support fiscal policy in managing financial cycles associated with oil prices.

### Key characteristics that increase the importance of macroprudential policy in the GCC
- Heavy reliance on volatile hydrocarbon revenues that drive large swings in government fiscal balances and domestic liquidity.
- Importance of real estate as a major asset class for investment and a common recipient of credit booms.
- Underdeveloped fixed-income and derivatives markets that limit the range of liquidity and risk management tools.
- Shortcomings in crisis resolution frameworks.
- Limited monetary policy independence under pegged exchange rates, increasing reliance on fiscal and macroprudential tools.

### Recent experience and systemic vulnerabilities
- The 2003–08 oil price boom produced large fiscal and external surpluses, buoyant activity, and rising confidence, fueling credit growth, inflation, and asset price increases.
- Real annual average credit growth of the GCC banks was 23 percent during 2003–08.
- Private sector credit to non-oil GDP reached 122 percent by end-2008.
- GCC stock markets posted 22–60 percent gains in 2007.
- Credit growth in some jurisdictions concentrated in construction and real estate lending, and in some cases increased lending for the purchase of securities.
- These dynamics reversed sharply during the global crisis, demonstrating the region’s vulnerability when the oil cycle turns.

### Institutional and analytical priorities
- There is scope to strengthen the institutional arrangements underpinning financial stability in the GCC.
- Macroprudential measures have historically been implemented by central banks without a formal framework or adequate legal backing.
- Recommended institutional steps:
  - Give central banks the formal mandate to ensure financial stability, leveraging their expertise and incentives to mitigate systemic risks.
  - Develop a formal and transparent macroprudential institutional and policy framework to clarify responsibilities and coordination among regulators and other relevant parties.
- Analytical and surveillance improvements:
  - Develop effective early-warning systems (EWS) to identify and monitor systemic risks.
  - Integrate macro stress testing as part of systemic surveillance.
  - Establish well-staffed macroprudential units within the entities in charge of macroprudential supervision.

### Recommendations to refine the macroprudential toolkit
- Targeted prudential interventions are needed to constrain excessive credit, leverage, and exposure to aggregate shocks.
- Suggested actions in five areas:
  - To help build and maintain adequate capital buffers in the banking sector, the high bank capitalization ratios in the GCC countries could be usefully complemented by an enhanced role for Pillar 2 and a further move toward risk-based supervision.
  - To help alleviate procyclicality in credit and asset markets, time-varying loan-to-deposit and loan-to-value ratios could be introduced.
  - To limit the buildup of excessive exposure to specific sectors or categories of borrowers, sectoral exposure limits, particularly for real estate and personal loans, could be used more. (Real estate should be defined to include all activities related to the construction and purchase of buildings.)
  - To support liquidity management, the development of domestic interbank money and debt markets is important. GCC regulators are in the advanced stages of developing regulations on liquidity risks to comply with Basel III requirements.
  - Enhance structural reforms—modernizing insolvency regimes and strengthening crisis management and resolution systems—to increase the effectiveness of macroprudential policies.

### Framework elements for an effective macroprudential policy
- A robust macroprudential framework should encompass:
  - A system of early warning indicators signaling increased vulnerabilities in financial stability.
  - A set of policy tools to contain risks beforehand, address vulnerabilities at an early stage, and build buffers to absorb shocks after the fact.
  - An institutional framework ensuring effective implementation of macroprudential policies.
- GCC central banks should strengthen macroprudential analysis and operational capacity through formal mandates and dedicated units.

*Source: _sdn1401 - EXECUTIVE SUMMARY (IMF) — extracted content from the supplied PDF content unit.*

### Section IV).

### _sdn1401 - Section IV)

### Credit and asset price boom, crisis impact, and policy response
- Most credit growth was financed by domestic deposits; banks’ foreign liabilities increased in Kuwait, Oman, Qatar, and the United Arab Emirates due in part to issuance of foreign currency–denominated medium-term notes to address maturity mismatches.
- Banks also used short-term speculative foreign deposits to finance lending, exacerbating maturity mismatches and creating refinancing risk.
- Corporate sector leverage rose, increasing vulnerability to funding availability and cost.
- The boom ended abruptly in late 2008 as the global financial crisis hit the GCC:
  - Stock markets fell by a combined 41 percent ($400 billion) between September 2008 and end-2008.
  - Real estate prices fell significantly (particularly in Dubai).
  - Credit default swap (CDS) spreads on sovereign debt widened across the board (more so for Bahrain and Dubai).
  - External funding conditions tightened and fiscal surpluses declined markedly (except in Qatar).
- Decisive policy actions moderated the crisis effects; central banks provided liquidity support and governments injected liquidity via long-term deposits. Specific measures included:
  - Easing reserve requirements (Bahrain, Oman, Saudi Arabia).
  - Lowering policy rates (except in Qatar).
  - Providing deposit guarantees (Kuwait, Saudi Arabia, United Arab Emirates).
  - Injecting capital into banks (Qatar).
  - Purchasing banks’ holdings of equity and real estate assets (Qatar).
- The crisis underscored the need to expand central banks’ mandates to incorporate financial stability.

*Sources: narrative in Section IV).*

### Monetary constraints, liquidity management, and market depth
- Exchange rate pegs to the U.S. dollar (except Kuwait) and relatively open capital accounts limit room to deviate from U.S. interest rates.
- Central banks’ liquidity management capabilities are limited:
  - Liquidity forecasting is in its infancy.
  - Liquidity absorption relies primarily on reserve requirements and standing facilities (including certificates of deposit).
  - Reserve requirements are described as too inflexible; standing facilities are passive.
  - Monetary transmission is constrained by shallow money markets.
- Inadequate sterilization of liquidity surpluses and weak transmission contributed to high credit expansion.
- Domestic fixed income markets are underdeveloped; fiscal surpluses mean governments have limited need to issue debt, reducing liquid money, bond, and derivative markets and limiting interest rate and liquidity risk management tools.

### Real estate prominence, corporate governance, and insolvency
- Real estate is a prominent asset class and collateral form given undiversified hydrocarbon-dominated economies.
  - Real estate lending is significant in Kuwait, Qatar, and the United Arab Emirates (see Figure 3 reference).
- Enforcement of collateral rights has been weak.
- High credit concentrations and weak corporate governance reduce banks’ resiliency:
  - Disclosure requirements often limited; group entities not fully visible.
  - Corporate and personal assets not always separated.
  - Supervisors have difficulty identifying unconsolidated exposures to private conglomerates.
  - High share and turnover of expatriates may increase short-term risk taking.
- Insolvency regimes and crisis resolution frameworks are often ineffective:
  - Court processes slow, procedures expensive, recovery rates low.
  - Qatar, the United Arab Emirates, and Saudi Arabia report very low usage of bankruptcy systems.
- Implicit deposit insurance schemes provide de facto full guarantees; the expectation that banks are “not allowed to fail” weakens market discipline.

### Macroprudential instruments in place and pre-2008 effectiveness
- Instruments used prior to and after 2008 included capital, provisioning, and liquidity requirements; ceilings on personal loans; and limits on exposure.
- Capital, provisioning, and liquidity:
  - Most GCC countries established fixed general provisions; dynamic or countercyclical measures were generally absent except Saudi Arabia, which requires banks to maintain a provisioning ratio of 100 percent of nonperforming loans (NPLs), raised as high as 200 percent at the height of the cycle.
  - Kuwait, Oman, Qatar, and the United Arab Emirates adjusted general provisioning after the crisis.
  - The United Arab Emirates planned to raise general provisions to 1.5 percent by 2014 to increase banks’ resiliency.
- Ceilings on personal loans (debt-service-to-income and repayment caps):
  - Debt-service-to-income caps are commonly used except in Oman and Kuwait.
  - Caps on monthly repayments range between 33 percent (for Saudi Arabia) and 50 percent for Bahrain, Qatar, and the United Arab Emirates.
  - The United Arab Emirates set a ceiling on the total amount of personal loans; Oman has no such ceiling.
  - Qatar imposed differential ceilings for nationals and expatriates.
  - LTV ratios were uncommon; only Qatar and Saudi Arabia took explicit LTV measures, while business practices elsewhere resulted in LTVs around 80 percent.
- Limits on exposures:
  - Loan-to-deposit (LTD) ratios common, ranging from 60 percent in Bahrain to 90 percent in Qatar.
  - The United Arab Emirates bars loans that exceed stable resources.
  - Limits on real estate exposure in place in all countries other than Kuwait and Saudi Arabia.
  - Limits on foreign exchange risk uncommon; only Oman and Qatar cap foreign currency lending and FX positions. Kuwait requires FX loans only to borrowers with FX cash flows.
- Pre-2008 macroprudential measures often came late and were undermined by exceptions:
  - Retail loans still constituted 30 percent or more of banks’ total loan portfolios in Bahrain, Kuwait, and Oman in 2008.
  - LTD ratios did not sufficiently slow credit growth because the deposit base expanded rapidly (average annual real growth in credit to the private sector during 2003–08 ranged between 17 percent for Oman to 35 percent for Qatar).
  - Definitions of real estate exposures did not cover related lending and financing activities, understating actual exposure.
  - LTVs for real estate developers might have helped stem the boom but were generally not used pre-crisis.

### Institutional frameworks and international experience
- Two key architectural elements for macroprudential policy emerge: (i) an authority with a clear mandate for macroprudential policy, and (ii) a formal coordination/consultation mechanism across policies affecting financial stability.
- General guidance:
  - The central bank should play an important role in macroprudential policy.
  - Complex/fragmented regulatory structures hinder effective systemic risk mitigation.
  - Participation by the Ministry of Finance is useful but dominance by the ministry poses risks.
  - Systemic risk prevention and crisis management are distinct functions and should have separate arrangements.
- International experience:
  - Many countries integrate prudential functions into the central bank (examples cited: Netherlands, Belgium, United Kingdom, Ireland).
  - Financial stability committees or councils are increasingly common; chairmanship varies (central bank in EU, UK, Belgium, Philippines, Thailand, Australia; Minister of Finance in Chile, Mexico, Turkey; Treasury in the United States; Ministry of Finance chairs committees in Hong Kong SAR, India, Indonesia).
- Institutional arrangements in the GCC:
  - Macroprudential mandates generally not codified by law; Qatar is an exception—Qatar Central Bank (QCB) has a legal mandate over financial stability and a Financial Stability and Risk Control Committee.
  - Other GCC countries rely on informal coordination mechanisms; many central banks have financial stability offices and publish financial stability reports (Bahrain since 2007; Qatar since 2010; Oman since 2013; Kuwait since 2013; United Arab Emirates since 2012).
  - Regulatory structures vary:
    - Bahrain: Central Bank of Bahrain is single regulator.
    - Kuwait: Central Bank of Kuwait conducts prudential regulation and supervision of banking; Capital Markets Authority (CMA) regulates capital markets.
    - Oman: Central Bank de facto single integrated regulator except capital markets (Capital Markets Authority).
    - Saudi Arabia: SAMA regulates banks, insurance, exchange dealers, mortgage/leasing/finance; Capital Markets Authority supervises capital markets.
    - Qatar: QCB regulates banking and insurance; Qatar Financial Markets Authority regulates securities; Financial Stability Committee chaired by QCB governor coordinates implementation.
    - United Arab Emirates: Multiple regulators—Central Bank regulates banking; Securities and Commodities Authority governs Dubai Financial Market and Abu Dhabi Securities Exchange; NASDAQ Dubai governed by Dubai Financial Services Authority; Insurance Authority regulates insurance sector.

### Moving macroprudential policies forward in the GCC — recommendations and instruments
- Institutional setup:
  - Develop a more formal and transparent macroprudential institutional and policy framework: mandate for financial stability, coordination framework, definition of objectives, analytical methods, and toolkit.
  - It is advisable to give central banks a formal mandate to ensure financial stability; establish formal coordination mechanisms (e.g., financial stability committee or council) to identify systemic risks and coordinate policy.
- Strengthening macroprudential analysis:
  - Continue publishing financial stability reports and develop macro stress testing as part of systemic surveillance.
  - Set up well-staffed macroprudential units within entities in charge of macroprudential supervision.
  - Develop an effective early-warning system (EWS) combining quantitative and qualitative indicators, including:
    - Macro aggregates and forecasts (domestic, external, sectoral imbalances).
    - Leverage ratios in financial, corporate, and household sectors.
    - Foreign borrowing by sector by maturity and instrument.
    - Real estate and equity market indicators.
    - Domestic credit growth indicators.
    - Banks’ sectoral exposures.
    - Liquidity and funding practice indicators.
  - GCC countries are at various stages: UAE FSU developing a stress index and EWS dashboard; Oman FSU developing a key-variables database; Qatar has a real estate price index in its EWS; Saudi Arabia is strengthening off-site surveillance and developing its EWS.
- Choosing macroprudential instruments — key recommendations:
  - Build and maintain sizeable capital buffers:
    - Ensure banks maintain higher capital than minimum international standards.
    - Most GCC banks target capital levels between 15 and 20 percent.
    - Existing minimum regulatory requirements range from 8 percent (Saudi Arabia) to 12 percent (Bahrain, Kuwait, United Arab Emirates).
    - Basel III changes noted: Saudi minimum would change to 10.5 percent by 2019; SAMA maintains a higher effective capital ratio requirement than regulatory minimum.
    - High share of Tier 1 capital in GCC banks is a mitigating factor.
  - Develop countercyclical capital buffers:
    - Need indicators to guide activation/deactivation; tailoring and supervisory judgment important.
  - Use provisioning rules for macroprudential purposes:
    - Dynamic provisioning faces calibration challenges due to limited historical data; general provisions remain useful.
    - Saudi Arabia requires provisioning ratio of 100 percent of NPLs (up to 200 percent in the cycle); some countries raised general provisions post-crisis (Kuwait, Qatar, UAE).
  - Restrict dividend distributions in good times to build capital buffers:
    - Examples: mandated buildup of general reserves as share of paid-up capital in Kuwait and Saudi Arabia; UAE restricted dividend distribution to build buffers.
  - Dampening credit and asset price booms:
    - Move closer to risk-based supervision and enhance Pillar 2 supervisory review linked to the cycle.
    - Use time-varying LTD ratios to counter procyclicality:
      - LTDs were in place but ineffective when deposits expanded rapidly.
      - Time-varying LTDs (lower ratios in upswings) could slow credit growth even as deposits rise.
      - Design carefully to avoid perverse incentives (e.g., weight deposits by maturity; Kuwait redefined LTD by allowing long-term deposits to be 100 percent loanable and applying a 25 percent haircut on short-term deposits).
    - Adopt appropriately calibrated, time-varying LTV ratios for real estate and DTI ratios for retail lending:
      - Most GCC regulators had DTI limits and loan tenor caps, but only Qatar had an explicit LTV cap for real estate.
      - Mortgage lending is nascent; LTV limits will become more important as mortgages expand.
      - Caps on LTV for commercial properties are important—commercial properties saw larger price declines post-2008 in Kuwait, Qatar, and UAE.
    - Address compensation scheme design:
      - Link performance-related pay to longer-horizon risk measures and back-load pay-offs to reduce short-term risk taking, especially given high share of expatriate employees and staff fluctuation.
- Caveats on methodology and calibration:
  - Most sophisticated methodologies for measuring risk and calibrating instruments may not be suitable now due to limited full-cycle experience and insufficient data.
  - Simpler rule-of-thumb instruments and guideposts (e.g., credit growth indicators) can be considered while datasets and analytical capacity are developed.

*Italic: Source — _sdn1401 - Section IV).*

### Box 2. Property market regulatory measures in selected countries

### Box 2. Property market regulatory measures in selected countries

### Empirical Studies
- Use of LTV caps decelerates property price growth; both LTV and DTI caps slow property lending growth.
- Ahuja and Nabar (2011) findings:
  - Use of LTV caps appears to strengthen bank capital buffers and bank performance in economies with pegged exchange rates and currency boards.
  - LTV caps lower NPLs in the broader sample.
  - LTV and DTI instruments are used more frequently in fixed exchange rate and currency board economies than in the broader sample.
  - In the broader sample, interest rate tools can also be deployed to control credit aggregates, which could explain smaller reliance on LTV and DTI instruments.

### Hong Kong SAR
- Monetary constraint: currency board rules out an independent monetary policy, increasing reliance on macroprudential measures.
- Measures taken since 2009 in response to a credit-asset price cycle:
  - Several changes to LTV and DTI cap policies.
  - Aggressive tightening of LTV ceilings caused average new residential mortgage LTV ratios to decline steadily in 2011.
  - Increase in public land sales to ensure adequate supply and manage house price inflation expectations.
  - Imposition of transaction taxes in the form of a Special Stamp Duty to discourage speculative short-term trading.
- Despite past measures reducing transaction volumes and creating significant buffers, house prices continued to rise, prompting further tightening in February 2013 including:
  - (i) a further rise in Special Stamp Duty for all transactions,
  - (ii) a further tightening of mortgage underwriting standards,
  - (iii) a lower LTV cap on commercial properties, and so forth.
- Empirical analysis:
  - Residential property price inflation appears to fall only about two years after the change in the LTV ratios.
  - Tightening of LTV limits appears to have little effect on total mortgage lending.
- Policy challenge: calibrate macroprudential tools in combination with land sale policy.

### Singapore
- Monetary policy objective: maintain price stability by managing the nominal exchange rate; capital flow and asset price considerations are managed with macroprudential tools.
- Measures introduced during 2009−12 targeting domestic and foreign real estate buyers:
  - LTV cap lowered from 90 percent to 40 percent in some cases since 2009.
  - Special Stamp Duty repeatedly extended and increased.
- Outcome:
  - Price growth slowed sharply in late 2011, though exogenous factors also likely contributed.

### Limiting the buildup of excessive exposure to targeted sectors or borrowers (GCC context)
- Structural conditions:
  - Limited range of domestic financial assets and importance of real estate in undiversified GCC economies contributed to property price booms and excessive banking exposure to real estate.
- Policy recommendation:
  - Well-calibrated and strictly enforced risk concentration limits can help contain excessive exposure to sectors or borrower groups.
- Specific observations:
  - Low share of residential properties financed by mortgages in the GCC and importance of lending to developers imply that capping LTVs alone is insufficient.
  - Limits on real estate exposure have been employed by GCC countries other than Kuwait and Saudi Arabia; several countries still experienced real estate boom-bust cycles, indicating insufficient calibration or enforcement.
  - Real estate exposure and property price increases were high pre-global financial crisis in United Arab Emirates, Qatar, and Kuwait.
- Definition guidance:
  - Real estate exposure should encompass all finance activities related to purchase and construction of buildings where the bank depends on real estate or real estate collateral as a source of repayment.
  - Example: Qatar broadened the definition in 2011 to include all real estate–related activities and finance granted for non-real-estate purposes where repayment depends on real estate collateral.
  - Trade-off: a conservative definition helps contain real estate exposure but restricts banks’ ability to expand lending to sectors (e.g., SMEs) where real estate is overwhelmingly used as collateral.
  - Recommendation: develop movable collateral frameworks to mitigate this problem.
  - Real estate regulation should ensure a level playing field between Shariah-compliant and conventional banks, taking into account the special characteristics of Shariah-compliant banks.
    - Note: The exposure to real estate of Shariah-compliant banks in the GCC has been high, and unlike conventional banks, they are allowed to hold equity-like real estate exposures in their balance sheets.
- Large exposure limits:
  - Need to be redefined and more strictly enforced in some cases.
  - High credit concentration in GCC banking systems is partly due to large family business groups and the importance of GREs.
  - Recommendation: complement existing large exposure limits with additional aggregate limits to certain borrower types (e.g., contemplated aggregate limits on lending to GREs in the United Arab Emirates).
  - Historical consequence: Excessive lending by Emirati banks to GREs led to asset quality problems, loan restructuring, a debt overhang, and high NPLs.

### Facilitating banks’ liquidity management to limit liquidity risk (GCC context)
- Challenges:
  - Shallow domestic money and debt markets, passive liquidity management frameworks, and persistent structural liquidity surpluses.
  - Basel III liquidity criteria for high-quality liquid assets are ill-suited to the GCC where domestic debt markets are underdeveloped.
  - Net stable funding requirement implies banks must match maturity of funding with asset maturity, creating tension given absence of domestic term funding markets and demand for long-term lending.
- Policy implications:
  - Basel III liquidity requirements should give impetus to domestic debt market development in the GCC, though development in fiscal surplus countries is challenging.
  - Qatar has been making efforts to develop its domestic government securities market, but reaching sufficient depth and liquidity will take time.
  - Funding risks from capital inflows need containment:
    - Rapid buildup of net foreign liabilities with maturity mismatches can create funding risk.
    - Need to limit liquidity risk when short-term foreign borrowings fund medium- and long-term domestic lending.
  - Potential measures to limit foreign funding risks:
    - Higher reserves required for short-term foreign liabilities.
    - Limits on foreign currency lending.
    - Calibrated liquidity requirements to more closely match maturity of liabilities to assets, specifically targeting foreign liabilities.

### Structural measures supporting macroprudential policy (GCC context)
- Vulnerabilities:
  - Weak corporate governance, weak financial disclosure, and high credit concentration increase systemic risk vulnerability.
  - Preventing systemic risk build-up is more important where crisis resolution frameworks and insolvency regimes are weak.
- Recommended structural improvements:
  - Strengthen credit reporting systems (private credit bureaus have been introduced in recent years).
  - Modernize insolvency regimes in all GCC countries.
  - Strengthen crisis management and resolution systems:
    - Many GCC countries lack explicit deposit guarantee schemes (except in Bahrain and Oman).
    - Need well-defined frameworks for coordination and information sharing between supervisory authorities.
    - Need clear mechanisms for funding resolution.
  - Improve corporate governance, disclosure standards, and risk management practices in the financial sector.

### Annex I. Macroprudential Instruments (selected entries)
- Risk measurement methodologies:
  - By banks: Risk measures calibrated through the cycle or to the cyclical trough.
  - By supervisors: Cyclical conditionality in supervisory ratings; measures of systemic vulnerability for calibration of prudential tools; communication of official assessments of systemic vulnerability and outcomes of macro stress tests.
- Financial reporting:
  - Accounting standards: Use of less procyclical accounting standards; dynamic provisions.
  - Prudential filters: Adjust accounting figures; prudential provisions as add-on to capital; smoothing via moving averages; time-varying target for provisions or maximum provision rate.
  - Disclosures: Disclosures of various types of risk and uncertainty in financial reports.
- Regulatory capital:
  - Pillar 1: Systemic capital surcharge; reduction in sensitivity of regulatory capital requirements to current point in the cycle; introduction of cycle-dependent multiplier; increase in regulatory capital requirements for particular exposure types.
  - Pillar 2: Link of supervisory review to state of the cycle.
- Funding liquidity standards:
  - Cyclically dependent funding liquidity requirements; concentration limits; FX lending restrictions; FX reserve requirements; currency mismatch limits; open FX position limits.
- Collateral arrangements:
  - Time-varying Loan-to-value (LTV) ratios; conservative maximum LTV ratios and valuation methodologies; limited extension of credit based on increases in asset values; through-the-cycle margining.
- Risk concentration limits:
  - Quantitative limits to growth of individual exposure types; (Time-varying) interest rate surcharges to particular loan types.
- Other instruments listed:
  - Compensation schemes, profit distribution restrictions, insurance mechanisms, managing failure and resolution (see source for examples).

### Annex II. Current Macroprudential Instruments in the GCC (selected country-specific figures)
- Bahrain:
  - Countercyclical capital requirements: No.
  - General provisions: Discretionary provision requirement.
  - Leverage ratios (capital to assets): Yes. 5% for retail banks and 10% for wholesale banks.
  - Reserve requirements on bank deposits: Yes. 5% of total deposits.
  - Limits on real estate exposure: Yes. 30% cap on real estate lending of banks as share of total bank lending.
  - Debt/Loan-to-income (DTI/LTIs) ratios: Yes. Maximum debt service ratio of 50% of monthly salary.
  - Limits on loan-to-deposit ratios: Yes. A voluntary 60-65% for most banks and 70-75% for those without large investments outside loans.
  - Liquidity requirements: Yes. 25%, Liquid assets/total assets.
  - Limits on exposure concentration (individual large exposure): Yes. 15% of regulatory capital.
- Kuwait:
  - Countercyclical capital requirements: No.
  - General provisions: Fixed level: 1% of cash items & 0.5% of non cash items.
  - Reserve requirements on bank deposits: No.
  - Limits on real estate exposure: No.
  - Loan-to-value (LTVs) ratios: For residential loans for vacant plots, 50 percent of the cost; 60 percent if property is an existing home; 70 percent if a new building to be constructed.
  - Limits on other sectoral exposure: Lending to shares should not exceed 10 percent of total lending.
  - Limits on loan-to-deposit ratios: LTD ratio replaced by maximum available funding with maturity-tiered limits: (i) Remaining maturity up to 3 months: 75%; (ii) remaining maturity from 3 months until one year: 90%; (iii) remaining maturity more than one year: 100%.
  - Liquidity requirements: Yes. 18%, Liquid assets/domestic currency customer deposits.
  - Limits on exposure concentration (individual large exposure): Yes. 15%, with aggregate large exposures limited to no more than 400%.
- Oman:
  - Countercyclical capital requirements: No.
  - General provisions: Fixed level: 2% of the outstanding performing 'personal loans' and 1% of outstanding performing 'other loans.'
  - Reserve requirements on bank deposits: Yes. 5%.
  - Limits on real estate exposure: Yes. 60 % of the bank net worth or 60 % of all time and savings deposits other than government and inter-bank deposits, whichever is higher.
  - Loan-to-value (LTVs) ratios: No limit (business practice is around 80%).
  - Limits on other sectoral exposure: Yes. Limits on personal loans: 40% of total credit; Housing loans: 10% of total credit; Non-residents: 5% of Net worth; Aggregate non-resident exposure: 30% of Net worth.
  - Limits on loan-to-deposit ratios: Yes. 87.5%.
  - Liquidity requirements: Yes.
  - Limits on exposure concentration (individual large exposure): Yes 15%.
- Qatar:
  - Countercyclical capital requirements: No.
  - General provisions: Yes. 1.5%.
  - Reserve requirements on bank deposits: Yes. 4.75%.
  - Limits on real estate exposure: Yes. For conventional banks, real estate lending not to exceed 150% of bank's capital and reserves (Tier 1). For Islamic banks, investment in real estates should not exceed 25% of the bank's capital and reserves.
  - Loan-to-value (LTVs) ratios: 70% for individuals, 60% for commercial companies.
  - Debt/Loan-to-income (DTI/LTIs) ratios: Yes. Credit to individuals capped at 50% of monthly salary and allowances, not to exceed QR 2.5 million per person.
  - Limits on loan-to-deposit ratios: Yes. 90% for credit ratio (loan-to-deposit ratio).
  - Liquidity requirements: Yes. 100%, Current assets/liabilities weighted by liquidity characteristics.
  - Caps on foreign currency lending: Yes. Lending to non-residents in foreign currency abroad is limited to 5% of net worth.
  - Limits on exposure concentration (individual large exposure): Yes. Max limit of credit facilities to a single borrowing group is 20% of bank capital and reserves. Total credit facilities granted to all customers and their borrower groups, at 10% or more of bank's capital and reserves, must not exceed 600% of bank's capital and reserves. Total credit facilities granted to related parties must not exceed 100% of bank's capital and reserves.
- Saudi Arabia:
  - Countercyclical capital requirements: SAMA has encouraged Saudi banks to increase their capital on a countercyclical basis. During the period 2003-2007, capital of the banking system increased 2.5 times; between 1992 to 1997 the capital of banks rose by 100%.
  - General provisions: Yes. 1.5% (gradually being raised to 1.5% of credit risk weighted assets that do not have a specific provision against them).
  - Reserve requirements on bank deposits: Yes. 7% on demand deposits; 4% on time and saving deposits.
  - Limits on real estate exposure: No.
  - Loan-to-value (LTVs) ratios: Yes. For real estate finance companies the regulations impose an LTV of 70%.
  - Debt/Loan-to-income (DTI/LTIs) ratios: Yes. Total monthly repayments (for both personal loans and credit cards) should not exceed 33% of a borrower's salary.
  - Limits on loan-to-deposit ratios: Yes. 85%.
  - Liquidity requirements: Yes. 20%, Liquid assets/deposits. In addition, SAMA has introduced Basel LCR and NSFR since January 2012.
  - Limits on exposure concentration (individual large exposure): Yes, the legal limit is 25%. In practice the limit is 15%.
- UAE:
  - Countercyclical capital requirements: No.
  - General provisions: Fixed level: 1%.
  - Reserve requirements on bank deposits: Yes. 14% for demand deposits; 1% for time deposits.
  - Limits on real estate exposure: Yes. 20% of deposits. Current definition of real estate exposure: loans for the construction of commercial and residential buildings.
  - Loan-to-value (LTVs) ratios: Regulation on differentiated LTVs for nationals and expatriates, as well as for first and second properties is pending.
  - Debt/Loan-to-income (DTI/LTIs) ratios: Yes. Borrowing limits for personal loans: (i) 20 times of salary or monthly income; (ii) loan tenor of 48 months; (iii) debt-service ratio of 50 percent of the borrower’s monthly salary.
  - Limits on loan-to-deposit ratios: Yes. Max 100% for the Advances to Stable Resources Ratio.
  - Liquidity requirements: Basel III-type regulation is pending.
  - Caps on foreign currency lending: No.
  - Limits on foreign exchange positions: Up to banks' internal risk management systems.
  - Limits on exposure concentration (individual large exposure): Yes. 25% for commercial public sector entities, 7% for private sector and individuals.

*Source: Country authorities and IMF staff.*

### ANNEX III. CURRENT INSTITUTIONAL SET-UP FOR FINANCIAL

### ANNEX III. CURRENT INSTITUTIONAL SET-UP FOR FINANCIAL REGULATION IN GCC COUNTRIES

### Bahrain
- The Central Bank of Bahrain (CBB) is the single regulator for the Bahraini financial system, according to the central bank law.
- CBB objectives and activities:
  - Promotes financial stability through regular financial sector surveillance, monitoring individual institutions and the system as a whole.
  - Duties include licensing and supervision of:
    - Banks (both conventional and Islamic).
    - Providers of insurance services (including insurance firms and brokers).
    - Investment business licensees (including investment firms, licensed exchanges, clearing houses and their member firms, money brokers, and investment advisors).
    - Other financial services providers (including money changers, representative offices, finance companies, and ancillary service providers).
  - Regulates licensed exchanges and clearing houses and acts as the Listing Authority for companies and financial instruments listed on the exchanges.
  - Responsible for regulating conduct in Bahrain's capital markets.
  - Publishes a financial stability report.
- Historical note (as provided in the source):
  - Prior to creation of the CBB in September 2006, the Bahrain Monetary Agency (BMA) acted as the sole regulatory authority since its establishment in 1973 and was given responsibility in August 2002 for regulating Bahrain's insurance sector and capital markets.

### Kuwait
- Prudential regulation and supervision of the banking sector are conducted primarily by the Central Bank of Kuwait (CBK).
- The Capital Markets Authority (CMA) commenced its supervisory role in September 2011.
- Institutional coordination and scope:
  - CMA bylaws specify CMA’s supervisory role over investment companies and delineate responsibilities and coordination between the CBK and CMA.
  - All investment companies are under dual supervision by the CBK and CMA pending separation of investment companies’ activities (i.e., lending versus other investment banking activities).
  - CBK and CMA meet regularly to ensure coordination based on a Memorandum of Understanding.
- Financial stability enhancements at CBK:
  - A new Financial Stability Office (FSO) was formed, drawing from interdepartmental competencies including supervision and macroeconomic analysis, reporting directly to the governor.
  - Analytical and systemic-risk tools developed include:
    - A quarterly off-site surveillance report.
    - Banking sector stress testing.
    - An early warning system (EWS) that incorporates macro and micro economic and financial indicators to signal sectorwide weaknesses.
- Historical note (as provided in the source):
  - Until establishment of the CMA, the Kuwait Stock Exchange (a self-regulated authority) supervised brokerage firms, entities engaged in portfolio management, and the Kuwait Clearing Company, and supervised banks’ and investment companies’ activities related to securities trading and portfolio management on account of third parties.
  - Supervision of the insurance industry, including brokers and agents, was the responsibility of the Ministry of Commerce and Industry.

### Oman
- The Central Bank of Oman (CBO) is de facto the single integrated regulator of Oman's financial services industry.
- CBO mandate and practice:
  - Committed to providing monetary and financial stability and fostering a sound and progressive financial sector to achieve sustained economic growth.
  - Macroprudential policy is not codified in the central bank law.
  - CBO employs microprudential measures with macroprudential characteristics to address systemic risk, such as higher capital requirements and sectoral exposure limits.
- The Capital Markets Authority (CMA) regulates and supervises the capital markets.
- The CBO established a Financial Stability Unit (FSU) for macroprudential supervision and to produce the financial stability report.

### Saudi Arabia
- The Saudi Arabian Monetary Agency (SAMA) regulates commercial banks, insurance companies and exchange dealers.
- The Capital Markets Authority (CMA) exercises supervision over the capital market.
- Legal and institutional observations:
  - In practice, existing law has not impeded SAMA’s effective supervision over the financial system.
  - The most recent FSAP update recommended revisions to the Banking Control Law (BCL) mainly to provide bank supervisors in SAMA with the formal independence envisaged in international standards.
  - The legal framework needs updating to formalize the independence and powers that SAMA already has in practice.
- Institutional developments:
  - SAMA has recently established a financial division.
  - A memorandum of understanding was written between SAMA and CMA in early 2012 to strengthen coordination on supervision.

### Qatar
- The Qatar Central Bank (QCB) has the legal mandate over financial stability, with powers to frame policies for regulation and supervision of all financial services and markets in Qatar.
- Legal amendments and objectives:
  - In December 2012, laws governing the QCB, the Qatar Financial Markets Authority (QFMA) and the QFC Regulatory Authority (QFCRA) were amended to:
    - Advance the framework for financial regulation.
    - Promote financial stability.
    - Expand the ambit of regulation to cover areas requiring new and enhanced financial regulation.
  - The amended laws laid the foundation for increased cooperation between regulatory bodies in Qatar.
- Financial Stability and Risk Control Committee (Financial Stability Committee):
  - Provides a formal structure for coordination among regulatory bodies.
  - Chaired by the governor of the QCB; membership includes the deputy governor (vice-chairman) and the chief executive officers of the QFMA and the QFCRA.
  - Responsibilities under the new law include:
    - Identifying and assessing risks to the financial sector and markets, and recommending solutions to manage and mitigate such risks.
    - Coordinating the work of financial regulatory authorities to enhance cooperation and information exchange for a consistent regulatory and supervisory environment.
    - Proposing policies related to regulation, control, and supervision of financial services businesses and markets.
  - The Financial Stability Committee’s recommendations are approved by the Board of Directors of the QCB; the boards of the QCB, QFCRA and the QFMA are responsible for implementing recommendations consistent with their legal and regulatory mandates.
- Regulator roles:
  - The QFMA and the QFCRA remain independent regulators under their respective Boards of Directors.
  - The QFMA is responsible for regulation and supervision of financial markets in Qatar including the Qatar Exchange.
  - Authorized firms in the QFC continue to be subject to authorization and supervision by the Regulatory Authority in accordance with the QFC Law, the Financial Services Regulations, and the Regulatory Authority’s Rules.

### United Arab Emirates
- Multiple regulators govern the UAE financial system:
  - The central bank (CBU) regulates the banking system.
  - Securities and Commodities Authority (SCA) governs and regulates the Dubai Financial Market (DFM) and the Abu Dhabi Securities Exchange (ADX).
  - NASDAQ Dubai (located in Dubai International Financial Centre) is governed by the Dubai Financial Services Authority (DFSA).
  - The insurance sector is regulated by the Insurance Authority established in 2008.
- Institutional arrangements and limitations:
  - The CBU has established a Banking Stability Committee but currently has no authority to include financial institutions outside the banking system in its macroprudential surveillance.
  - Responsibility for systemic risk mitigation is divided between:
    - The Banking Stability Committee (ultimately responsible for any action taken).
    - The Financial Stability Unit (provides analysis and proposes regulatory reforms to address identified risks).
  - The central bank currently has no powers to access information collected by other regulators.
  - No formal arrangements for information sharing among regulators; information sharing is only done on a voluntary basis between the CBU and the SCA.
- Legislative and strategic developments:
  - The new Emirati federal strategy gives the CBU responsibility to oversee financial stability.
  - Authorities are considering legislation governing supervision of the financial sector to meet demands of new financial markets and modernize the regulatory framework.
  - The draft law on the Regulation of the Financial Services Sector and associated amendments to a number of federal laws could signal a move towards a twin-peaks model of financial supervision.

*International Monetary Fund — ANNEX III. CURRENT INSTITUTIONAL SET-UP FOR FINANCIAL REGULATION IN GCC COUNTRIES (excerpt)*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/sdn/2014/_sdn1401.pdf_