Public Information Notice: IMF Reviews Experience with the Financial Sector Assessment Program (FSAP) and Reaches Conclusions on Issues Going Forward

February 5, 2001

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On December 12 and 13, 2000 the Executive Board of the International Monetary Fund (IMF) reviewed the experience to date with the Financial Sector Assessment Program (FSAP). The Board agreed that the FSAP process provides a sound framework for identifying financial sector vulnerabilities, strengthening the analysis of macroeconomic and financial stability issues, identifying development needs and helping national authorities develop appropriate policy responses.


The FSAP was introduced in May 1999 by the IMF and the World Bank to strengthen the monitoring of financial systems in the context of the IMF's bilateral surveillance and the Bank's financial sector development work. The FSAP, which was developed in the wake of the financial crises of the late 1990s, is designed to help countries enhance their resilience to crises and cross-border contagion, and to foster growth, by promoting financial system soundness and financial sector diversity. The value added from the program derives importantly from its collaborative nature. The joint nature of the program, and the expert support it receives from various cooperating institutions, ensures consistency of policy advice by the Fund and the Bank, economizes on scarce expert resources, and enhances the legitimacy of the program.

The FSAP is still relatively new, and is built on analytical techniques, tools, and methodologies some of which are evolving as all parties involved learn from experience. Consequently, while the program's central focus on strengthening financial systems will not change, its precise modalities and implementation will continue to be refined and improved over time.

Focus of FSAP

Assessments of financial systems undertaken under the FSAP identify the strengths, risks and vulnerabilities in the financial system, and the two-way linkages between financial sector performance and the macroeconomy; ascertain the sector's development needs; and help national authorities to design appropriate policy responses. The comprehensive nature of these assessments requires a wide range of analytical tools and techniques, including macroprudential analysis, stress testing and scenario analysis, and assessments of observance and implementation of relevant international financial sector standards, codes and good practices. In implementing the FSAP, IMF and World Bank staff have been drawing on feedback received from previous reviews of the program by the Executive Boards of the IMF and the World Bank, from countries that have already participated in the program, and from various international groups.

External Experts

In addition to their own expert staff, the IMF and the World Bank draw on the expertise of experts from a range of cooperating central banks, supervisory agencies, standard setting bodies and other international institutions in carrying out the assessments. As well as augmenting the pool of expertise already available in the World Bank and the IMF, outside experts provide a valuable element of peer review to the analysis undertaken in the FSAP, particularly as regards the assessments of financial sector observance of standards and codes which are an integral part of the program.

Technical Assistance and Follow-up

Based on the common analytical platform provided by an FSAP assessment, the IMF and the World Bank staff then each prepare separate reports for their Executive Boards—a Financial System Stability Assessment (FSSA) and a Financial Sector Assessment (FSA), respectively—which focus on the issues arising from the FSAP exercise that are of relevance to each institution's specific mandate and responsibilities. This diagnostic work is followed up by technical assistance and other forms of support to countries where vulnerabilities and development needs are identified.

Expanded Number of Countries

The program was initially launched on a one-year, 12 country, pilot basis. During an initial review of the FSAP pilot in the spring of 2000, Executive Directors of both the IMF and the World Bank welcomed the quality of the work thus far and agreed to expand the pace of the program to around 24 countries over the following 12 months. Participation in the program is voluntary.

Executive Board Assessment

At their December 2000 meetings, IMF Executive Directors welcomed the opportunity to review the program in light of the further experience that has been gained with the FSAP pilot since the review in the spring of 2000. Directors agreed that, based on the completion of the missions to all 12 pilot countries, the work to date with the second round of country cases, and the feedback and support received from participating countries and cooperating institutions, it was timely to establish guidelines for a continuation of the FSAP program for the period ahead.

Directors agreed that the FSAP process provides a coherent and comprehensive framework to identify financial system vulnerabilities and strengthen the analysis of domestic macroeconomic and financial stability issues, to identify development needs and priorities, and to help authorities develop appropriate policy responses. They welcomed the broad range of information and analysis that the FSAP process brings to financial sector assessments, and noted in particular that this process provides the overall macroprudential and institutional context necessary for a thorough assessment of observance of international standards, codes, and good practices in the financial sector.

Directors observed that the FSSAs, derived from FSAP findings and Article IV consultations, have appropriately focused on the stability issues of relevance to IMF surveillance. The comprehensive coverage of FSSAs, drawing on a broad range of information, helps to deepen the quality and scope of coverage of Article IV consultations. Accordingly, Directors agreed that the FSSAs are the preferred tool for strengthening the monitoring of financial systems under the IMF's bilateral surveillance.

Directors underscored that an underlying objective of the FSAP is to encourage national authorities to implement measures to redress identified vulnerabilities and development needs. In that context, they believed that the IMF (as well as the World Bank) should ensure that the strategic components of the assessment are reflected in other aspects of country programming, and that appropriate technical assistance and other support are provided to national authorities that request it.

Directors welcomed the steps taken in the IMF and the World Bank to ensure consistency and quality in their joint FSAP work, as well as in the separate related work in the two institutions, including the monitoring of financial systems in terms of the IMF's Article IV surveillance. They encouraged the staff to press ahead with the work being undertaken in the context of the FSAP to develop analytical techniques, including macroprudential indicators, the use of stress tests and scenario analysis, and the assessment methodologies of financial sector standards in collaboration with standard-setting bodies.

Standards and Codes

Directors emphasized that assessments of observance of international standards, codes, and best practices have an important role to play in the FSAP. When considered with the other analysis undertaken in the FSAP, they help to identify vulnerabilities, gaps in regulatory structures and practices, and medium-term reform and development needs and priorities. They also help country authorities to evaluate their own systems against international benchmarks.

Directors noted that the summary standards assessments that flow from the detailed assessments are presented as an input into the overall stability assessment in the FSSA, and become financial sector modules of the Reports on Observance of Standards and Codes (ROSCs). While agreeing that the FSAP/FSSA process provides the proper context within which to assess standards, a number of Directors suggested that financial sector standards assessments carried out outside the FSAP also have a highly useful role to play, both to support implementation of standards by member countries, and as part of the preparatory work for a future FSAP assessment. Some Directors noted that, although central to the FSAP, the assessment of observance of standards and codes is resource-intensive and that the relevant standards to be assessed should be carefully selected in order to avoid stretching costs and procedures.

World Bank-IMF Collaboration

Directors noted that the collaborative nature of the FSAP has ensured that the best expertise is mobilized to undertake the diagnostic work of joint World Bank-IMF FSAP missions. At the same time, most Directors agreed that the division of responsibilities, once the joint work is completed, ensures that clear accountability for the IMF's and the World Bank's separate work is maintained. While noting the interrelationship between financial system stability and financial sector development, Directors stressed that the IMF's primary responsibility is in the area of systemic stability issues, while that of the World Bank is in the development aspects.

Coverage and Frequency of FSAP

Directors had an extensive discussion of prioritization in the FSAP process. They considered that a variety of criteria could appropriately be employed to establish priorities in selecting country cases in the face of limited resources, including a country's systemic importance; its external sector weakness or financial vulnerability; the nature of its exchange rate and monetary regime; and geographical balance among countries. All in all, Directors agreed that the country selection should be such as to help maximize the program's contribution to the strengthening of national and international financial stability. Most Directors noted that within any one year, giving a higher priority in the FSAP country selection process, to systemically important countries would be warranted. It was noted that prioritization in this sense means a difference in timing, not treatment. At the same time, Directors continued to stress the merit in maintaining a broad country coverage in the program. They felt that members should have the opportunity to participate in the FSAP to help them strengthen and develop their financial sectors, to prevent costly financial sector crises, and, where relevant, to prepare the ground for financial market liberalization and greater access to the international capital markets.

Directors considered how to maintain adequate monitoring of financial systems under IMF surveillance in years between full assessments, given the voluntary nature of the program and the limited frequency with which full assessments of an individual member can be undertaken. This is particularly important for countries identified as vulnerable, or systemically important, and whose financial systems are evolving at a rapid pace. Directors agreed that, for surveillance purposes, focused updates of FSSA findings could be undertaken by IMF staff in the context of subsequent Article IV consultations.

Directors agreed that the country's choice of whether or not to participate in the FSAP does not alter the IMF's responsibility to conduct financial sector monitoring. If a country volunteered to participate in the FSAP, but could not be accommodated by the program immediately, or if a country chose not to participate in the FSAP, Directors noted that the Article IV mission team for that country could be reinforced with financial sector expertise, and some assessment in key areas of concerns could be undertaken. Nevertheless, Directors believed that the full exercise remains the preferred vehicle for conducting financial sector assessments as input to IMF surveillance, and they agreed that, when relevant, the staff should be prepared to recommend—for instance, in discussions with authorities or in the staff appraisal in the Article IV staff report—that the country participate in the FSAP.

Directors noted that the scope of FSSAs, particularly for countries with significant offshore financial centers, should be extended beyond domestic stability considerations to encompass possible cross-border effects and consideration of international repercussions, while maintaining its country-specific focus.

Offshore Financial Centers (OFCs)

Directors also noted that FSAP assessments covered both the cross-border activities of financial institutions, and the activities of financial institutions operating in an off-shore center within the country, and so would overlap with the IMF's work on assessments of OFCs. The FSAP assessment of such countries would generally be expected to result in "module three" OFC assessments—which comprise assessments of financial risks, relevant financial sector standards and codes, and cross-border effects of the relevant OFC. Separate "module three" assessments would, however, still take place outside the FSAP for those OFCs that are not members of the IMF and the World Bank, as well as, in some cases, for OFCs within a member country. In the latter case, these OFC assessments could provide input into a subsequent full FSAP assessment for the country.

Resource Implications for IMF

Directors considered the potential budgetary implications of the staff proposals on the FSAP for fiscal year 2002 and beyond. They noted that the pace of the FSAP will depend on a number of factors, including how the suggested prioritization of FSAP country cases is translated into practice. Directors broadly agreed that the IMF should keep the effective implementation of priorities in view in aiming for the suggested pace of up to 30 assessments per year. Both the pace of the FSAP and its new resource implications will be subjected to further assessments by the IMF and the World Bank in the context of their respective upcoming budget discussions.

Publication of Findings

On publication and circulation issues, Directors noted that, under the existing arrangements, FSAP reports are prepared as confidential documents for national authorities, since some information needed to carry out the diagnostic aspects of an FSAP mission's work, especially that related to individual financial institutions, is highly sensitive. Directors agreed that the current policy of the management of the IMF and World Bank not to provide authorization for the publication of the main volume of FSAP reports and the associated confidential documents should be continued. They also endorsed management's intended policy to provide authorization for the publication by the authorities of the detailed assessments of observance of standards and codes that are included in FSAP reports.

When discussing publication and circulation policies for FSSAs, most Directors agreed that the policy of voluntary publication was appropriate. They noted that several national authorities have requested that the IMF allow publication of FSSAs. Some Directors felt, however, that the current policy, whereby publication of FSSAs is not permitted, should be continued.

On balance, most Directors agreed to authorize IMF publication of FSSAs after the associated Article IV consultation has been concluded. Such publication will be subject to:
(i) the consent of the respective member concerned; (ii) the same deletions policy regarding highly market-sensitive information that applies to Article IV staff reports; and (iii) the same rules on internal circulation and release to outside agencies that apply to Article IV staff reports. It was agreed that publication of an FSSA could proceed even if the member concerned did not consent to the publication of the relevant Article IV consultation report. While some Directors supported publication of the initial assessments for the 12 pilot countries, it was also agreed that the new publication policy for FSSAs should not apply to these cases. For a participant in the FSAP pilot project in the process of accession to the European Union, it was agreed that the member's FSSA could be circulated to the European Commission.


The importance of adequate procedures to ensure the confidentiality of sensitive information provided to FSAP missions, especially on individual financial institutions, has been stressed in previous Board discussions. Directors noted that the confidentiality procedures that must be followed by staff, as well as experts from cooperating institutions, as laid out in the confidentiality protocol are working well.

Next Review

Directors agreed that the further review of the experience under the FSAP should take place in 18 months.


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