Background

This FIRST technical assistance is extended to the Nepal Rastra Bank (NRB) to develop a contingency plan to ensure a prompt and effective response to financial distress and potential systemic crisis.

NRB has been working with the World Bank and the IMF to strengthen its capacity. The rapid growth in credit, the large number of new banks in the market and the concentration on real estate related loans throughout the financial system, combined with political uncertainty and what appears to be an asset bubble, point to an unstable financial environment. A collapse in real estate prices or a bank failure could have serious systemic repercussions. Although there are long-term programs with the World Bank and the IMF, there is an urgent need for a contingency plan to be in place, in case the financial instability turns into a systemic crisis as a result of a collapse in real estate prices.

Project

GOAL: Main objectives to be achieved by means of developing a contingency plan are: (i) strengthened procedures to deal with systemic crisis; (ii) effective intra- and inter-agency coordination by the NRB with the other financial sector authorities in Nepal, including information sharing, analysis, decision-making and internal and external communication.

OUTPUTS: The Contingency Plan will address the following specific issues:

• Documentation of existing laws, regulations, policies and procedures of NRB relevant to handling financial crisis including identification  of any critical weaknesses and gaps in these rules, with recommendations to eliminate them;
• Emergency Liquidity Assistance (ELA) rules and procedures;
• Identification of respective legal responsibilities of key players;
• Documentation of any existing communication and coordination strategy of NRB, identification of gaps in this strategy and recommendations to eliminate these weaknesses; and,
• Recommendations on effective public communication during times of distress, including templates for documents such legal contracts and press releases

Project LIFE TIME is 7 months, starting in May 2010

Project BUDGET is $110,000

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