Project on Improving the Macroprudential Architecture of Ukraine to Promote the Resilience of the Financial System in the Post-War Recovery Period and to Develop Scenarios and Challenges for Ukraine’s Post-War Development

Purpose: Designing changes to the existing macroprudential framework in Ukraine that will promote resilience during the transformation stage of the recovery, and building stylized recovery scenarios for Ukraine to illustrate the main challenges to change and policy, including potential trade-offs.

Component 1: Macroprudential framework for Ukraine.

This component is aimed at designing changes to the existing macroprudential framework in Ukraine that will contribute to resilience during the transformation and recovery stage. Tools for the banking sector and borrower-oriented measures, as well as policies for the non-banking sector, will be reviewed, where appropriate, taking into account the structure of the Ukrainian financial system and its potential evolution towards European integration. The proposals will be consistent with regulatory frameworks, tools and calibration in EU member states.

Stages:

• conceptual: identification of the expected structural changes in the Ukrainian financial system during the post-war period in order to establish a mapping between them and aspects of macroprudential policy
• calibration: development of strategies and quantitative methods for a systematic approach to calibrating tools, and the actual calibration – including through adjustments to stress testing tools (if appropriate).

Component 2: post-war scenarios and challenges.

The component is aimed at building recovery scenarios for Ukraine to illustrate the main challenges for change and policy, including potential policy trade-offs. Variables will be identified that serve as starting points for the implementation of three scenarios over a time horizon to 2030, using dynamic transition and growth models.

As a result, the report “Systemic Risks to the Financial System of Ukraine in the Medium Term” is expected to identify financial stability risks in the retail and corporate lending segments, the banking sector, and those related to the role of the state in shaping financial conditions and financial intermediation. It will offer recommendations for regulatory and macroprudential policy.