IMF Sets Out a Strategy for Financial SurveillancePublic Information Notice (PIN) No. 12/111
September 21, 2012
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 September 19, 2012, the Executive Board of the International Monetary Fund (IMF) adopted a strategy for financial surveillance—a key recommendation of the 2011 Triennial Surveillance Review. The strategy takes stock of the innovations and gaps in the IMF’s financial surveillance during the past decade and proposes concrete and prioritized steps to further strengthen financial surveillance so that the Fund can fulfill its mandate to ensure the effective operation of the international monetary system and support global economic and financial stability.
While financial deepening and globalization have brought important benefits, the increased size, complexity, and pace of capital flows and financial systems now inextricably link national economies to each other and expose them to financial shocks that can be damaging.
In response, the IMF has placed a greater emphasis on identifying systemic risks, on developing new policy frameworks, and on enhancing its instruments for policy dialogue with national authorities. And as the international architecture has evolved, the Fund has deepened its collaboration with the other stakeholders involved, including the World Bank, the G20, the Financial Stability Board, and standard-setting bodies. In meeting these objectives, the Fund has leveraged its core strengths—its expertise in assisting countries hit by financial crisis, the credibility and independence that derive from its legal mandate, its nearly universal membership, and the high quality, diversity, and experience of its staff.
Executive Board Assessment
Directors welcomed the financial surveillance strategy, which is a key recommendation of the Triennial Surveillance Review and the Managing Director’s Action Plan for Surveillance. They noted that the strategy provides an appropriate medium-term perspective, complementing the short-term focus of the financial surveillance work agenda adopted in April 2012. The strategy builds on progress in Fund financial surveillance, taking stock of Fund innovations in the past decade and of remaining gaps. Directors noted that the strategy is appropriately ambitious but focused to ensure effective use of scarce resources, and welcomed the prioritized activities and specific timeframes for further strengthening financial surveillance.
Directors broadly endorsed the three pillars of the strategy: (i) improving risk identification and macrofinancial policy analysis; (ii) upgrading the instruments and products of financial surveillance to foster an integrated policy response to risks; and (iii) increasing the traction and impact of financial surveillance by engaging more actively with stakeholders.
Directors underlined the importance of strengthening the analytical underpinnings of macrofinancial risk assessments and policy advice, and broadly concurred with the policy areas for analysis. In particular, with shocks that propagate rapidly through highly interconnected financial systems across countries, they stressed the importance of deepening the understanding of the nature and implications of cross-border linkages, vulnerabilities, and spillovers. They generally welcomed the staff’s work on developing a unified macrofinancial framework, which will explore the interdependencies of real-financial sectors and improve our understanding of linkages and interactions between macroeconomic and macroprudential policies. Directors also welcomed the plan to assess the implications of ongoing global regulatory reforms. Regarding capital flow management, a few Directors underscored the need to respect the members’ right to adopt measures they deem appropriate.
Directors supported upgrading the instruments and products of financial surveillance to foster an integrated policy response to risks. They considered it a priority to strengthen and mainstream financial surveillance in Article IV consultations. They noted that the Fund is distilling a range of macrofinancial risk assessments in the context of bilateral and multilateral analyses, including its flagship publications, which will strengthen Article IV and multilateral surveillance. They also underscored the importance of follow-up of FSAP recommendations in Article IV consultations. They encouraged better integration of Fund products through closer collaboration between relevant functional and area departments, and development of greater expertise within country teams. Most Directors could support the proposal for higher frequency FSAPs for those countries that request them, prioritized according to clear criteria in line with existing policies. Some Directors cautioned that higher frequency assessments could inadvertently send negative signals. A few others emphasized the need for evenhandedness in accommodating requests for assessments. Some Directors saw scope to streamline the Fund’s surveillance products to further focus the Fund’s policy messages.
Directors agreed that improving the traction and impact of financial surveillance requires both the commitment of members and more active engagement with stakeholders. They highlighted the importance of clear, candid, and evenhanded assessments, with careful management of public communication. Directors noted the intention to have the Fund, with its universal membership, serve as a global facilitator on macroprudential policy. It was suggested that the Fund could assume this role in an informal capacity. Directors stressed the need to continue to cooperate with other institutions. In particular, they looked forward to further collaboration between the Fund and the Financial Stability Board in line with their respective mandates. They supported deepening the collaboration with the World Bank on financial sector work.
Directors acknowledged the challenges in implementing the strategy, including analytical roadblocks, information and data gaps, resource constraints, and limits to traction. They generally welcomed the G20/IMFC Data Gaps Initiative, which aims to improve the timeliness and accuracy of information on global systemically important financial institutions, and looked forward to further discussing the initiative in the context of the Board review on data provision. Directors noted the importance of adequate resources for the implementation of the strategy and looked forward to discussions on how to reallocate or augment the Fund’s operational budget. Some Directors saw room for meeting resource demands through re-prioritization of Fund activities.
Directors welcomed the clear delineation of responsibility and accountability for financial surveillance within the Fund. They noted that monitoring mechanisms are in place to allow management and the Board to ensure that the Fund’s efforts are in line with the goals and objectives of Fund financial surveillance. They looked forward to the opportunity for the Board to review progress in implementation, including in the context of the 2014 Triennial Surveillance Review.