On the occasion of its meeting on 02 July 2025 and on its review of the financial system’s performance and systemic risks based on data up to March 2025, the Financial Policy Committee (FPC) issues the following statement:
Recent developments in the United States’ (US’) immigration and trade policies, with reciprocation by its major trading partners, have contributed to heightened global economic uncertainties. The uncertainties have led to a decline in US gross domestic product (GDP) for the March 2025 quarter and downward revisions to the growth forecast. Several other major economies are projected to record slower growth. Financial markets in the US also exhibited increased volatility. Consequently, some of the major central banks, including the Federal Reserve, have paused their monetary policy easing cycles.
Notwithstanding these developments, domestic macro-financial conditions remained broadly stable during the March 2025 quarter, relative to the prior two quarters. This performance was reflected in real GDP growth, a moderation in inflation and relatively stable financial market conditions. The Bank’s composite measures of financial stability remained well below the established financial crisis thresholds, indicating the continued health of the financial system. Other indicators of financial stability, including capitalisation, liquidity and asset quality measures remained broadly stable and above prudential benchmarks. However, the profitability of the sector continued to fall, reflecting generally higher operating expenses and slower income growth.
The trajectory for global and domestic macro-financial conditions remains uncertain in the context of the ongoing trade war and other policy actions. A prolonged trade war could put upward pressure on domestic inflation, which may in turn necessitate more restrictive monetary policy, drive volatility in financial markets and dampen output growth. The implications of these developments for the financial system include negative changes in asset prices and further reductions in profitability. Moreover, the highly interconnected nature of the financial sector and the presence of systemically important financial institutions heighten the potential for stress in a financial institution to trigger broader spillover or contagion effects.
As such, stress tests and contagion simulations were conducted to determine financial institutions’ resilience to various credit-related and market risk shocks. The results of the assessments indicated that the respective financial system sub-sectors’ capital buffers remain sufficient to absorb the contemplated macro-financial shocks. However, there continues to be selected instances of vulnerability to selected shocks that would need to be remedied by additional capital injections.
Other potential near-to-medium term risks include climate-related financial risks, cyber risks and the possibility of an economic downturn or recession.
The Supervisors of the financial sector will continue to conduct ongoing monitoring and risk assessment and determine, where necessary, the most appropriate policy response to minimise risks and to promote financial system stability. Of note, the Bank will conduct detailed assessments of the implications of its planned programmes of reforms for the sector and, where necessary, will adjust the pace of implementation of these reforms.
The key policy initiatives that are being considered for implementation in the short- to medium-term include:
- Joint efforts by Bank of Jamaica and the Financial Services Commission to transition to the Twin Peaks model of Supervision.
- Advancement of legislation for a special resolution regime which will establish an approach to resolution in which non-viable financial institutions deemed systemically important are resolved.
- Implementation of the Basel III Framework, which includes the establishment of a systemic risk buffer intended to address the inherent risk that systemically important financial institutions pose to the financial system.
Financial Policy Committee
02 July 2025
