## ppea2021042

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---

### Introduction — purpose, scope, and methods
- FSAP objective: enhance IMF engagement with policymakers and influence country policies to reduce frequency and severity of financial crises.
- Traction defined as usefulness to authorities and effect on shaping domestic policy agenda and broader audiences.
- Limitations of simple correspondence measures between Fund advice and policy action noted (can overstate or understate traction).
- Paper assesses whether FSAPs:
  - spurred policy actions;
  - improved awareness of financial stability issues among country authorities;
  - were well integrated into Article IV surveillance;
  - were impactful in the broader financial stability community and financial sector work.
- Methods: surveys of key stakeholders, review of relevant papers including Article IV staff reports, and textual analysis from the Comprehensive Surveillance Review (CSR).

### Traction with country authorities — survey evidence and assessments
- Value added (2019 survey):
  - Most valued: independent assessment, in-depth analysis, clarity of analysis, detailed assessments of supervisory standards, policy relevance.
  - Less valued: benchmarking against other countries, transferring knowledge about new analytical techniques.
  - Greater value for defining TA agenda in countries with greater TA needs.
- Engagement:
  - More than 80 percent of country authorities report being satisfied or largely satisfied with interactions with FSAP teams during scoping and missions.
  - Remainder evenly split between engagement perceived as too little and too much.
- Scope and focus:
  - Vast majority agreed FSAP analyses were well structured, relevant, appropriate in breadth and depth, and considered country circumstances.
  - In 2019 a large majority viewed resources devoted to components as appropriate; 20–30 percent saw merit in increasing resources on stress testing and assessments of financial sector policy frameworks and safety nets.
  - Pandemic effects (2020 follow-up):
    - Over 60 percent suggested increasing pillar 1 work.
    - 30–50 percent suggested increasing pillars 2 and 3 work.
    - 40 percent saw merit in increased resources for emerging issues (climate, fintech, cyber).
  - Some respondents cited burdens on country officials (preparatory work and number of meetings) and encouraged streamlining.
- Risk assessments:
  - Stress testing of banks highly valued.
  - Minority cautioned nonbank risk channels were less well covered.
  - Interconnectedness, cyber risk, and fintech cited as areas needing more attention.
- Integration with Article IV:
  - About 70 percent viewed FSAP as adequately or well-integrated with Article IV.
  - Concerns about depth of analytical linkages and Article IV teams’ expertise for follow-up.
  - Strong support for ensuring macro-criticality of recommendations, deeper/longer participation of FSAP members in Article IV teams, and simplified analytical tools for Article IV teams.

### Quality, implementation, and impact of recommendations
- Quality perceptions:
  - Vast majority viewed recommendations as clear, candid, well prioritized/sequenced, and actionable.
  - Country officials’ views improved compared with 2009 and 2014 survey results.
- Implementation:
  - Almost 95 percent of country respondents indicated FSAP recommendations had been partially or fully implemented.
  - Subsequent FSAPs indicate somewhat lower implementation rates for non-S29 and non-advanced jurisdictions.
- Contribution to policy debate:
  - Authorities’ satisfaction with FSAP contribution to policy debate improved over time; notable in promoting dialogue among regulatory agencies and between financial authorities and broader government, including legislators.
- Barriers to fuller implementation cited:
  - Too recent completion limiting time to implement.
  - Lack of political support.
  - Technical disagreements.
  - Capacity constraints.
- Suggested enhancements:
  - Greater efforts to explain rationale for recommendations (e.g., add section to FSSA discussing authorities’ views).
  - Active engagement for follow-up technical assistance where helpful.

### Views of the Fund’s Executive Directors (EDs)
- Scope and priorities:
  - EDs generally agreed scope appropriate but noted scope sometimes defined by available expertise and absence of well-defined criteria.
  - Interest in expanding coverage of interconnectedness, nonbank vulnerabilities (market-based finance, corporate and household sectors), fintech, and cyber risks.
  - Pandemic raised interest in bank stress tests, household and corporate sector risk analysis, and macro-financial feedback effects.
- Traction, integration, and resources:
  - Nearly 80 percent of ED respondents suggested FSAPs warranted more Board attention.
    - Suggestions: separate Board discussions for assessments, more Article IV attention (relaxing word limits), more time for FSAP discussion.
  - About one-half of EDs felt FSAP assessments are weakly integrated into Article IV.
    - Cited lack of follow-ups, weak FSAP–Article IV team integration.
    - Suggestions: better prioritization, simplified analytical tools for Article IV teams, better World Bank integration, enabling FSAP participation in subsequent Article IV missions.
  - Over 60 percent of EDs felt resources devoted to FSAP were insufficient for broader coverage.
    - Proposed either increasing envelope or making program more efficient (scale back stress testing/development issues or better pre-mission coordination).

### Findings on traction with country authorities (CSR and external evidence)
- CSR survey: "80 percent reported that IMF financial sector recommendations influenced national policy formulation or debate 'to a great extent or to some extent'".
- CSR sentiment analysis: authorities’ sentiment higher when countries undergo FSAPs.
- IEO/background evidence (Caprio, 2018): FSAP value-added in advanced economies mainly as:
  - (i) opportunity to exchange views with a trusted advisor and explore lessons from latest stress tests or cross-border risks;
  - (ii) warning against "regulatory backsliding" after the Global Financial Crisis;
  - (iii) encouraging communications and cooperation across regulatory and other agencies.
- IEO case studies: FSAP significant for some EMs (examples: China 2011 and 2017; Nigeria FSAP influential in strengthening regulatory environment).
- Executive Directors representing EMs and LICs: majority believed FSAPs helped identify risks and served as catalyst for reform.

### Integration with Article IV surveillance — institutional changes and practice
- Mandatory FSAPs for members with systemically important financial sectors (SIFS) since 2010; required every five years for 25 jurisdictions, expanded in 2013 to 29 jurisdictions ("S29").
- FSB 2010 commitment: FSB members committed to undergo FSAPs every five years and disclose results; adherence monitored by FSB’s SCSI. The 24 jurisdictions that are FSB members are listed in the source.
- 2014 TSR: proposed mainstreaming macrofinancial surveillance, clarified roles of Article IV and FSAPs, established internal guidelines for integration.
- Process requirements to promote integration:
  - Article IV and FSAP missions timed within two months.
  - Area department staff expected to participate in FSAP missions.
  - FSAP mission chiefs attend concluding Article IV meetings.
  - FSAP teams prepare Approach and Staffing Note and Financial Stability Policy Note in consultation with country teams.
  - FSAP notes and the FSSA required to review past Article IV recommendations on financial sector issues.

### Patterns of incorporation into Article IV and program documents
- Board discussion results typically incorporated into Article IV press releases, often issued at conclusion of FSAP mission (subject to authorities’ concurrence).
- Spectrum of follow-up by Article IV teams:
  - Selective emphases: anchor advice on key FSAP recommendations (not recommendation-by-recommendation).
  - Detailed review: Article IV teams request authorities’ detailed information on FSAP recommendation status and include it in Article IV reports.
  - Current expected practice: Article IV Staff Reports after FSAP to include FSAP recommendations and implementation status as self-reported by authorities.

### Empirical patterns and stakeholder perceptions
- Empirical pattern (1999–2018): average references to FSAPs in Article IV documents increase sizably in FSAP year then tail off sharply the next year, remaining higher than pre-FSAP for several years; integration higher in pure surveillance cases than in programs.
- Staff finding: frequency and clarity of systemic risk assessments in Article IV reports strongly temporally correlated with the FSAP; short shelf life of quantitative risk assessment may explain decline.
- Survey/stakeholder views:
  - Two-thirds of national authorities stated FSAP "well" integrated.
  - Over "90 percent" of Article IV mission chiefs and SPR respondents consider integration adequate.
  - "One-half" of Executive Director respondents saw integration as adequate.
  - All responding Article IV mission chiefs and SPR reviewers rated their financial sector knowledge as "comfortable" or "strong."
  - Staff analysis (CSR): systemic risk analysis limited to FSIs discussion in "one-third of advanced economies" Article IVs and "two-thirds of emerging market and developing economies" Article IVs.
- IEO observation: integration strong but needed to go further; FSAP quality superior but low frequency limits detection of fast-changing risks. Recommendations: continuous offsite analysis, greater topical selectivity, improve Article IV teams’ financial sector knowledge.

### Factors supporting systemic risk assessment linkage (2014–19)
- CSR work: recent FSAPs associated with stronger systemic risk analysis and better linkage to macroprudential policy advice in Article IV reports.
- Figure 7 evidence cited: participation by MCM, presence of a recent FSAP, inclusion in S29, and Mac-Fin pilot (2015–16) correlated with higher incidence of macroprudential policy advice linked to a well-articulated view about systemic risk.

### Areas for improvement from FSAP Review Survey
- Common needs:
  - More effective follow-up on FSAP recommendations.
  - Better prioritizing of recommendations.
  - Development of simplified FSAP analytical tools for Article IV teams.
- Article IV mission chiefs: closer coordination with World Bank on macro-critical developmental issues.
- About one-quarter of respondents: concern about FSAP coverage of housing markets and household and corporate balance sheet risks.
- National authorities and Executive Directors: deeper and longer participation of FSAP mission members in Article IV missions would enhance quality.

### Options and actions to better leverage FSAP for Article IVs
- Simplified analytical tools:
  - MCM progress in developing and disseminating simplified tools; until fully integrated, additional technical support may be needed.
- Increase cross-mission participation:
  - FSAP mission chiefs already join Article IV mission in FSAP year; extending participation in subsequent years could support integration but requires resources.
- Early engagement in Article IV review:
  - CSR proposes closer FSAP involvement in early stages of Article IV policy note review.

### Box 1 — Simplified Financial Risk Assessment Tools (recently developed)
- Global Bank Stress Test (GST):
  - First published in October 2020 Global Financial Stability Report (GFSR).
  - Produces macro scenario-driven stress test results using publicly available financial statements of individual banks for about 30 jurisdictions.
  - Converted into an excel-based tool for Article IV teams with a user manual; in-reach with area departments and MCM economists conducted.
- Universal Bank Stress Test (UST):
  - Under development to create simplified GST extended to a larger sample of emerging and developing economies using aggregate data from IMF’s FSI database for about 110 jurisdictions.
- Nonfinancial corporate stress testing tool:
  - Underway given heightened NFC risks from COVID; emphasizes link to bank stress tests.
- Systemwide FX liquidity stress testing tool:
  - Examines spillovers of external FX liquidity shocks across domestic sectors and on central bank international reserves; published as part of the COVID-19 note series.

### Cross-fertilization, coordination, and public traction
- Cross-fertilization with the GFSR:
  - GFSR tools/data relevant for FSAPs; FSAPs inform multilateral financial stability views.
  - 6 of the 12 GFSR publications since 2014 explicitly referenced FSAP.
  - Examples of mutual informing include use of GFSR approaches in FSAP stress testing and FSAP analyses appearing in GFSR chapters.
- Practical limits:
  - Timing mismatch: FSAP at most once in 5 years vs. GFSR twice per year.
  - Data nature: FSAPs use granular confidential supervisory data; GFSR relies on public global data.
- Linkages with standard-setting bodies (SSBs) and FSB:
  - FSAPs rely on SSB frameworks; IMF/World Bank staff participate in SSBs (BCBS, IAIS, IOSCO, CPMI, FSB, IADI, FATF, NGFS, TCFD).
  - IMF is formal FSB member; coordination with FSB peer reviews and SCSI noted.
  - Opportunity: scheduling peer reviews mid-way between FSAP assessments and deeper coordination with peer review teams.
- FSAP and Fund Technical Assistance (TA):
  - FSAP provides platform for designing TA; post-FSAP TA is demand-driven and prioritized by FSAP-identified gaps.
  - Recent TA follow-up examples: Democratic Republic of the Congo, Jamaica, Mauritania, Moldova.
- Publication, confidentiality, and public traction:
  - Confidential supervisory data limits publicization, academic uptake.
  - Publication rates:
    - Just over 80 percent of FSSAs were published since financial year 2010.
    - Publication rates for Technical Notes and Detailed Assessment Reports are lower but rose in the late 2010s.
    - Assessments shifted toward TNs from DARs since 2014 Review.
  - Central bank traction:
    - Survey suggests 75 percent of central bank FSRs published within the year of the FSAP contained specific references to FSAP findings or recommendations.
    - Stakeholder survey: even among central banks not publishing FSRs or publishing without FSAP references, 90 percent worked to implement FSAP recommendations.
  - Public attention:
    - Press references and internet search interest increasing, with year-to-year variation driven by G20 member FSAP timing (example: 2017 spike from China and Spain).
    - Downloads of FSAP documents from IMF website closely mirror press references and search trends.
  - External awareness:
    - Caprio (2018): limited awareness among market participants in advanced S29 countries.
    - For EMEs, FSAPs highly regarded by market participants (examples: China, Malaysia).
    - Academic interest limited, possibly due to confidentiality and institution-specific technical analysis.

### Outreach, impact, and conclusions
- Outreach and policy debate:
  - FSAPs have spurred policy debate, especially among financial regulators; impact on broader government agencies has risen but is less than among financial regulators.
  - Enhanced impact when assessments attract press attention and through IMF Communications liaison.
  - Recommendations to increase impact: outreach to broader government, non-government institutions, academics, market participants; greater use of IMF website and social media.
- Conclusions:
  - FSAP traction is strong and improved in recent years:
    - Country authorities value FSAP independent assessment, in-depth analysis, clear findings, and relevant recommendations.
    - Most recommendations judged implemented; implementation rates improved in last five years.
    - Perceptions of clarity, candor, prioritization, and contribution to policy debate improved.
    - High ratings for interactions with FSAP teams and appropriateness of scope and focus; FSSA publication and public attention increased.
  - Integration with Article IV increasing:
    - Large share of country officials rate integration adequate or higher.
    - FSAP recommendations increasingly feature in Article IVs with follow-up beyond initial FSAP year.
  - Areas for further improvement:
    - EDs call for increased attention to FSAP assessments.
    - Article IV chiefs prefer FSAP-provided analytical tools for ongoing monitoring.
    - Country officials note implementation impediments: lack of political support, technical disagreements, capacity constraints.
    - Practical options:
      - Include special FSSA section summarizing authorities’ views to support ownership and clarify implementation impediments.
      - Outreach to broader government agencies, experts, and legislators to build political support.

*Source: 2021 FSAP REVIEW—BACKGROUND PAPER ON TRACTION (pp. INTRODUCTION and TRACTION WITH COUNTRY AUTHORITIES sections) — INTERNATIONAL MONETARY FUND*

### INTRODUCTION _______________________________________________________________________ 4

### INTRODUCTION

### Purpose and scope
- The Financial Sector Assessment Program (FSAP) is judged on the extent to which it has enhanced the IMF’s engagement with policymakers and influenced country policies, with the ultimate objective of reducing the frequency and severity of financial crises.
- “Traction” is defined as the degree to which the program is seen as useful by authorities and the effect it has in shaping the domestic policy agenda and broader domestic and international audiences.
- Measuring traction can be done by assessing correspondence between Fund policy advice and subsequent policy action, but this metric has limitations: it can overstate traction if advice merely validated actions already planned, and understate traction if advice stimulated debate without immediate policy action.
- This paper builds on earlier assessments and addresses whether FSAPs:
  - spurred policy actions;
  - improved awareness of financial stability issues among country authorities;
  - were well integrated into Article IV surveillance;
  - were impactful in the broader financial stability community and financial sector work.
- Methods: leverages surveys of key stakeholders, review of relevant papers including Article IV staff reports, and textual analysis conducted as background for the Comprehensive Surveillance Review (CSR).

### Link with the 2014 FSAP Review and CSR
- The 2014 FSAP Review concluded traction was strong but identified areas for improvement: prioritization of recommendations, promoting dialogue with domestic audiences (e.g., legislatures), and uniform publication rates for FSAP reports.
- Measures from 2014 aimed to increase integration of FSAP with Article IV surveillance and boost profile, traction, and impact with external audiences by:
  - increasing focus on macrofinancial relevance to streamline and prioritize recommendations;
  - structuring Financial System Stability Assessments (FSSAs) to feed more easily into Article IV surveillance priorities.
- The CSR and the FSAP Review share objectives to further strengthen financial surveillance in Article IV consultations, proposing:
  - better integration of FSAP analysis, findings, and policy recommendations into Article IV consultations;
  - strengthening macrofinancial analysis in Article IV surveillance through new tools, increased macrofinancial expertise, and reducing knowledge and data gaps.

---

### TRACTION WITH COUNTRY AUTHORITIES

### Summary assessment (survey evidence)
- The 2019 survey of country officials provides a positive assessment of FSAP’s impact as an instrument of Fund surveillance (Figure 1).
- Key dimensions reported by country authorities:
  - Value added:
    - Most valued aspects: the independent assessment, in-depth analysis, clarity of analysis, detailed assessments of supervisory standards, and policy relevance of findings.
    - Relatively less valued: benchmarking against other countries and transferring knowledge about new analytical techniques.
    - Value for defining the TA agenda was greater in countries with greater TA needs.
  - Engagement:
    - More than 80 percent of country authorities report being satisfied or largely satisfied with their interactions with FSAP teams during both scoping and missions.
    - The remainder were evenly split between those who thought engagement was too little and those who thought it was too much.
  - Scope and focus:
    - Vast majority agreed or strongly agreed FSAP analyses were well structured, relevant, appropriate in breadth and depth, and effectively took account of country circumstances.
    - In the 2019 survey a large majority viewed resources devoted to components as appropriate, but 20–30 percent saw merit in increasing resources on stress testing and assessments of financial sector policy frameworks and safety nets.
    - The pandemic elevated authorities’ interest across all three pillars:
      - Over 60 percent of respondents to the 2020 follow-up survey suggested increasing pillar 1 work.
      - 30–50 percent of respondents suggested increasing work in pillars 2 and 3.
      - 40 percent saw merit in increased resources for emerging issues (e.g., climate, fintech, and cyber).
    - Some respondents expressed concerns about burden on country officials (preparatory work and number of meetings) and encouraged streamlining where possible.
  - Risk assessments:
    - Stress testing of banks was highly valued.
    - Minority cautioned nonbank risk channels were less well covered.
    - Interconnectedness, cyber risk, and fintech cited as areas needing more future attention.
  - Integration with Article IV:
    - About 70 percent viewed FSAP as adequately or well-integrated with Article IV.
    - Concerns remained about depth of analytical linkages between FSAP risk assessments and Article IV macroeconomic assessments and whether Article IV teams had sufficient expertise for follow-up.
    - Strong support for ensuring macro-criticality of FSAP recommendations, deeper and longer participation of FSAP mission members in Article IV teams, and development of simplified analytical tools usable by Article IV teams.

### Quality, implementation, and impact of recommendations
- Quality perceptions:
  - Vast majority viewed FSAP recommendations as clear, candid, well prioritized/sequenced, and actionable.
  - Country officials’ views improved compared with 2009 and 2014 survey results (Figure 2).
- Implementation:
  - Almost 95 percent of country respondents indicated FSAP recommendations had been partially or fully implemented.
  - Subsequent FSAPs indicate somewhat lower implementation rates for non-S29 and non-advanced jurisdictions.
- Contribution to policy debate:
  - Authorities’ satisfaction with FSAP contribution to policy debate improved over time, notably in promoting dialogue among regulatory agencies and between financial sector authorities and broader government, including legislators.
- Barriers to fuller implementation (as reported by respondents):
  - Too recent completion of the FSAP limiting time to implement changes.
  - Lack of political support.
  - Technical disagreements with recommendations.
  - Capacity constraints.
- Suggested enhancements to traction:
  - Greater efforts by FSAP teams to explain rationale for recommendations (e.g., adding a section to the FSSA discussing authorities’ views, akin to Article IV Staff Reports).
  - Active engagement where follow-up technical assistance may be helpful.

---

### VIEWS OF THE FUND’S EXECUTIVE DIRECTORS (EDs)

### Scope and priorities
- EDs generally agreed scope of FSAP assessments was appropriate in relevance and breadth, but some concerns:
  - Scope sometimes defined by expertise available at the time of mission.
  - No well-defined criteria for defining scope.
- EDs expressed interest in expanding coverage of:
  - Interconnectedness;
  - Vulnerabilities in the nonbank sector (including market-based finance and the corporate and household sectors);
  - Fintech and cyber risks.
- Pandemic context: EDs’ interest increased in bank stress tests, risk analysis of household and corporate sectors, and macro-financial feedback effects compared to the 2019 Survey.

### Traction, integration, and resources
- Traction and Board attention:
  - Nearly 80 percent of ED respondents suggested FSAPs warranted more attention at the IMF’s Board.
  - Suggestions included separate Board discussions of assessments (e.g., stand-alone FSAP Board meeting slightly ahead of the Article IV Board discussion for jurisdictions with systemically important financial sectors (SIFSs) or a subgroup of SIFS), greater attention to FSAP in Article IV staff reports (including relaxing word limits), or providing more time for FSAP discussion during Board meetings.
- Integration with Article IV:
  - About one-half of EDs felt FSAP assessments are weakly integrated into the Article IV process.
  - Cited issues:
    - Lack of follow-ups in subsequent years (e.g., pro forma references to past FSAP recommendations rather than current assessment of risks).
    - Weak integration between FSAP and Article IV teams.
  - Suggestions for improvement:
    - Better prioritization of recommendations.
    - Use of simplified analytical tools for assessing financial risks that could be passed to Article IV teams.
    - Better integration with the World Bank on developmental issues.
    - Enabling participation of FSAP mission members in Article IV missions in subsequent years.
- Resources:
  - Over 60 percent of EDs felt resources devoted to FSAP were insufficient to enable broader country coverage.
  - Some EDs suggested increasing the overall envelope for assessments.
  - Others suggested making the program more efficient by:
    - Scaling back FSAP stress testing and coverage of development issues;
    - Better coordination ahead of missions to prioritize FSAP topic coverage.

---

*Italic: 2021 FSAP REVIEW—BACKGROUND PAPER ON TRACTION (INTRODUCTION and TRACTION WITH COUNTRY AUTHORITIES sections) — INTERNATIONAL MONETARY FUND*

### 12.      These results are consistent with those from the CSR survey (Figure 4). In particular, the

### 2021 FSAP REVIEW—BACKGROUND PAPER ON TRACTION

### Findings on traction with country authorities
- CSR survey: "80 percent reported that IMF financial sector recommendations influenced national policy formulation or debate 'to a great extent or to some extent'".
- CSR sentiment analysis (deep learning on Article IV staff reports): authorities’ sentiment was higher when countries undergo FSAPs.
- IEO/background evidence (Caprio, 2018): FSAP value-added in advanced economies mainly as:
  - "(i) the opportunity to exchange views with a trusted advisor and to explore lessons from the latest stress tests in other countries, and/or evidence of cross-border risks that the IMF believes;
  - (ii) to warn against 'regulatory backsliding' after the Global Financial Crisis;
  - (iii) to encourage needed communications and cooperation across regulatory and other agencies."
- IEO case studies: FSAPs remained significant for some EMs; examples cited:
  - China FSAPs of 2011 and 2017 provided "critical input into [the authorities’] deliberation and decision-making."
  - Nigeria FSAP was "influential in strengthening the regulatory environment."
- Executive Directors representing EMs and LICs: majority "believed that FSAPs helped authorities identify risks and vulnerabilities and served as a catalyst for reform."

### Integration with Article IV surveillance — institutional changes and practices
- 2010: FSAP assessments made mandatory for members with systemically important financial sectors (SIFS); assessments required every five years for 25 jurisdictions, expanded in 2013 to 29 jurisdictions (the "S29").
- FSB 2010 commitment: FSB members committed to undergo FSAP assessments every five years and disclose results; adherence monitored by FSB’s Standing Committee on Standards Implementation (SCSI). The 24 jurisdictions that are FSB members are listed in the source (Argentina, Australia, Brazil, Canada, China, France, Germany, Hong Kong SAR, India, Indonesia, Italy, Japan, Korea, Mexico, the Netherlands, Russia, Saudi Arabia, Singapore, South Africa, Spain, Switzerland, Turkey, United Kingdom, United States).
- 2014 Triennial Surveillance Review (TSR): proposed mainstreaming macrofinancial surveillance, clarified roles of annual Article IV and lower-frequency FSAP assessments, and established internal guidelines to ensure integration.
- Process requirements to promote integration:
  - Article IV and FSAP missions timed within two months of each other.
  - Area department staff (typically the desk economist) expected to participate in the FSAP mission.
  - FSAP mission chiefs attend concluding meetings for the Article IV mission.
  - FSAP teams prepare an FSAP Approach and Staffing Note and a Financial Stability Policy Note in consultation with country teams and departments.
  - FSAP notes and the FSSA required to review past Article IV recommendations on financial sector issues.

### Patterns of incorporation in Article IV and program documents
- Typical practice: results of Board discussion of FSAP assessments usually incorporated into the press release for that year’s Article IV; press release often issued at conclusion of FSAP mission (subject to authorities’ concurrence).
- Examples: June 2019 Article IV concluding statement for Romania referenced progress on the previous year’s FSAP; June 2019 U.S. Article IV referred to the forthcoming FSAP; May 2018 China Article IV press conference referenced accompanying FSAP assessment.
- Spectrum of follow-up by Article IV teams:
  - Selective emphases: reference and anchor advice on key FSAP recommendations; not a recommendation-by-recommendation review (example: 2018 India Article IV).
  - Detailed review based on self-reporting: Article IV teams request authorities’ detailed information on FSAP recommendation status and include it in the Article IV report (examples: 2017 Germany Article IV appendix repeated in 2018; 2019 Brazil Article IV).
  - Current expected practice: Article IV Staff Reports after FSAP to include FSAP recommendations and their implementation status as self-reported by national authorities.

### Empirical patterns and stakeholder perceptions
- Empirical pattern (1999–2018): average number of references to FSAPs in Article IV documents increases sizably in the year of the FSAP then tails off sharply the next year, remaining higher than pre-FSAP for the next several years; integration higher in pure surveillance cases than in programs.
- Staff finding: frequency and clarity of systemic risk assessments in Article IV reports are strongly temporally correlated with the FSAP; short shelf life of quantitative risk assessment may explain part of the decline.
- Survey results and stakeholder views:
  - Two-thirds of national authorities stated that the FSAP was "well" integrated.
  - Over "90 percent" of Article IV mission chiefs and SPR respondents consider integration to be adequate.
  - "One-half" of Executive Director respondents saw integration as adequate.
  - All responding Article IV mission chiefs and SPR reviewers rated their financial sector knowledge as "comfortable" or "strong."
  - Staff analysis (CSR): systemic risk analysis in Article IV is limited to discussion of Financial Soundness Indicators (FSIs) in "one-third of advanced economies" Article IVs and "two-thirds of emerging market and developing economies" Article IVs respectively.
- IEO observation: FSAP-Article IV integration strong but needed to go further; FSAP quality superior but low frequency makes it less suited to identifying fast-changing risks. Recommendations included continuous offsite analysis, greater selectivity of topical focus, and improving Article IV teams’ financial sector knowledge.

### Factors supporting systemic risk assessment linkage (2014–19)
- CSR background work: recent FSAPs are associated with stronger systemic risk analysis and better linkage to macroprudential policy advice in Article IV reports.
- Figure 7 categories and evidence cited in source: participation by MCM, presence of a recent FSAP, inclusion in S29, and Mac-Fin pilot (2015–16) correlated with higher incidence of macroprudential policy advice linked to a well-articulated view about systemic risk.

### Areas for improvement identified in the FSAP Review Survey
- Common needs identified by all stakeholders:
  - More effective follow-up on FSAP recommendations.
  - Better prioritizing of FSAP recommendations.
  - Development of simplified FSAP analytical tools for Article IV teams.
- Article IV mission chiefs: closer coordination with the World Bank on macro-critical developmental issues.
- A quarter of respondents: concern about FSAP coverage of housing markets and household and corporate balance sheet risks.
- National authorities and Executive Directors: deeper and longer participation of FSAP mission members in Article IV would enhance quality of financial surveillance in Article IV.

### Options and actions to better leverage FSAP for Article IVs
- Develop simplified analytical tools:
  - MCM progress in developing and disseminating simplified analytical tools to support Article IV teams; until fully integrated, additional technical support from MCM may be needed.
- Increase cross-mission participation:
  - FSAP mission chiefs already join Article IV mission in the year of the FSAP; participation by Article IV mission chiefs in FSAP and cross-participation in subsequent years could further support integration but would require additional resources.
- New process for early engagement in Article IV review:
  - CSR proposes that the FSAP team be more closely involved in early stages of the Article IV policy note review process.

### Box 1 — Simplified Financial Risk Assessment Tools (recently developed)
- Global Bank Stress Test (GST):
  - First published in the October 2020 Global Financial Stability Report (GFSR).
  - Produces macro scenario-driven stress test results using publicly available financial statements of individual banks for about 30 jurisdictions.
  - Converted into an excel-based tool for Article IV teams with a corresponding user manual; in-reach with area departments and MCM economists conducted.
- Universal Bank Stress Test (UST):
  - Under development to create a simplified version of GST extended to a larger sample of emerging and developing economies using aggregate data from IMF’s FSI database for about 110 jurisdictions.
- Nonfinancial corporate stress testing tool:
  - Underway given heightened risks from nonfinancial corporations (NFCs) as a result of COVID; tool emphasizes link to bank stress tests.
- Systemwide FX liquidity stress testing tool:
  - Examines spillovers of external FX liquidity shocks across domestic economic sectors and on international reserves of the central bank; published as part of the COVID-19 note series.

*2021 FSAP REVIEW—BACKGROUND PAPER ON TRACTION*

### 26.      There are opportunities for cross-fertilization between the FSAP and the Fund’s

### 26.      There are opportunities for cross-fertilization between the FSAP and the Fund’s

### Cross-fertilization between FSAP and the GFSR
- Both exercises focus on financial sector risks and vulnerabilities; tools and data compiled by the GFSR can be relevant for FSAPs and vice versa.
- GFSR’s views on key risks and the Global Risk Assessment Matrix can help identify areas for deeper analysis and designing the scope of FSAPs.
- FSAP in-depth assessments (including for jurisdictions with systemically important financial sectors) can provide information for a multilateral view of financial stability.

### Evidence of increasing integration since the 2014 FSAP Review
- On the surface, 6 of the 12 GFSR publications since the 2014 FSAP review have made explicit references to the FSAP.
- Examples of cross-use and mutual informing:
  - FSAPs use the GFSR as a starting point in risk analysis and in the FSAP Risk Assessment Matrix (example: 2015 United States FSAP technical note on stress testing used GFSR approaches to assessing mutual fund liquidity).
  - The FSSA for the 2018 euro area FSAP used the Growth-at-Risk framework and referred to estimates of the too-important-to-fail subsidy derived from the GFSR.
  - The October 2018 GFSR contained a major chapter on regulatory reform that made extensive use of FSAP analysis.
  - The 2019 France FSAP followed up on banks’ U.S. dollar funding issues highlighted in the April 2019 GFSR.
  - The corporate vulnerability analysis of the 2019 France FSAP was followed up in the October 2019 GFSR; the GFSR included detailed discussion of U.S. dollar funding fragilities based on FSAP findings.
  - The April 2020 GFSR chapter on physical risks related to climate change included a box drawing lessons from FSAP’s climate stress tests.

### Analytical tools linking GFSR and FSAP
- Growth-at-Risk (GaR) and the Global Stress Testing (GST) framework are important common analytical tools.
  - 2019 Canada FSAP employed GaR to frame macrofinancial vulnerabilities and to calibrate severity of adverse scenarios.
  - The GST featured extensively in the Fall 2020 GFSR; stress testing teams worked with the GFSR team on COVID-19 financial stability impacts.
- FSAP’s granular country analysis goes beyond reduced-form GaR, but GaR offers common analytical ground connecting GFSR and FSAP.

### Practical limits to integration
- Timing mismatch: FSAPs for an individual country occur at most once in 5 years, while the GFSR is issued twice per year with a higher-frequency focus.
- Data nature: FSAPs rely on granular, country-specific, confidential supervisory data; the GFSR relies largely on publicly available global-level data.

### Linkages with standard-setting bodies (SSBs)
- FSAP assessments of financial regulation, supervision, safety nets, and resolution rely on frameworks set by internationally accepted standards and codes from SSBs.
- The IMF and World Bank staff participate in many SSBs to help ensure guidance reflects membership needs and that standards are assessable in FSAP missions.
- Recognized standard-setting bodies include BCBS, IAIS, IOSCO, CPMI, FSB, IADI, and FATF; IMF and World Bank also participate in NGFS and TCFD discussions on climate-related financial stability and disclosure.

### Engagement approach with SSBs
- Engagement is constructive and collaborative; supervisory standards have increased in number and complexity, raising assessment burden.
- Fund staff reached understandings with SSBs responsible for banking, insurance, and securities standards on a flexible approach allowing either graded assessments of full principles or focused qualitative examination of key areas.

### Coordination with the Financial Stability Board (FSB)
- Important linkages were established post-Global Financial Crisis; FSB members committed to adhere to international financial standards and undertake FSAP evaluations and publish findings.
- The FSB’s SCSI monitors implementation of agreed FSB policy initiatives and international standards and conducts peer reviews, including monitoring efforts to address FSAP recommendations.
- IMF coordination with FSB:
  - IMF is a formal FSB member, represented by the IMF Financial Counsellor at FSB plenary and steering committee, with senior staff in other committees.
  - FSB peer reviews coordinate closely with Fund staff on schedule and coverage.
  - IMF Article IVs and FSAPs have benefitted from FSB peer and thematic reviews.

### Opportunities to strengthen FSB peer review role
- Post-2016 peer review reports diminished explicit mention of FSAP recommendations despite the FSB handbook emphasizing FSAP follow-up.
- A recent FSB “lessons” paper suggested deeper coordination between FSB peer review teams and Bank/Fund staff, possibly including FSAP team members on peer review teams (noting resource implications for the IMF).
- Scheduling peer reviews mid-way between FSAP assessments could enhance their role in encouraging adoption of FSAP recommendations.

### FSAP and Fund Technical Assistance (TA)
- FSAP was intended to provide a platform for designing subsequent TA, especially in emerging market and developing economies.
- At program launch, Fund and Bank were charged with using FSAP assessments to establish medium-term TA strategies for follow-up by donors, multilaterals, or countries.
- Post-FSAP TA is demand-driven and requires country interest and IMF delivery capacity; internal IMF prioritization gives weight to FSAP-identified gaps.
- Recent TA follow-up examples: Democratic Republic of the Congo, Jamaica, Mauritania, and Moldova.
- FSAP recommendations, prioritized by macro-criticality, help prioritize multiple TA requests and scope; in Fund-supported programs, FSAP provides comprehensive recommendations and sequencing roadmaps.
- MCM sometimes provides workshops or small conferences for advanced economies requesting details of innovative FSAP analyses instead of formal TA.

### Publication, confidentiality, and public traction
- Confidentiality of supervisory data limits publicization of results and academic/public policy uptake; assessments involve market-sensitive judgments about individual systemically important institutions.
- Publication rates:
  - Just over 80 percent of FSSAs were published since financial year 2010, with publication rates climbing for advanced, emerging market, and low-income countries.
  - Publication rates for Technical Notes (TNs) and Detailed Assessment Reports (DARs) are much lower but have risen in the second half of the 2010s.
  - Since the 2014 FSAP Review, assessments have shifted from comprehensive DARs toward more focused TNs where prior compliance was established, reducing the number of DARs per FSAP and increasing TNs.
- Central bank traction:
  - A survey suggests 75 percent of central bank FSRs published within the year of the FSAP contained specific references to FSAP findings or recommendations.
  - Stakeholder survey results indicate that even among central banks not publishing FSRs or publishing without FSAP references, 90 percent worked to implement FSAP recommendations.
- Public attention trends:
  - Press references to FSAPs and internet search interest have been increasing, with year-to-year variation driven largely by FSAP assessment timing for G20 members (example: 2017 spike due to China and Spain assessments).
  - Metrics such as downloads of FSAP documents from the IMF website closely mirror press references and search trends.
- External audience awareness:
  - Caprio (2018) finds limited awareness of FSAP documents among market participants in advanced S29 countries.
  - For emerging market economies, FSAPs are highly regarded by market participants (examples: China and Malaysia FSAPs).
  - Academic interest appears limited, possibly due to confidentiality and institution-specific technical analysis.

### Outreach and increasing policy debate impact
- FSAP has helped spur policy debate, especially among financial regulators; impact on broader government agencies has risen but remains less than among financial regulators.
- FSAP mission chiefs reported enhanced impact when assessments attracted press attention and through liaison with the IMF’s Communications Department.
- Recommendations to increase impact:
  - More conscious outreach to broader government, non-government institutions, academics, and market participants.
  - Greater use of the IMF’s website and social media to disseminate FSAP assessments and stability issues.

### Conclusions and scope for improvement
- FSAP traction is strong and has improved in recent years:
  - Country authorities value FSAPs for independent assessment, in-depth analysis, clear findings, and relevant policy recommendations.
  - Most FSAP recommendations are judged by country authorities to be implemented, with implementation rates significantly improved in the last five years.
  - Perceptions of clarity, candor, prioritization of recommendations, and FSAP contribution to policy debate have improved across agencies and legislators.
  - Country officials rated interactions with FSAP teams and the appropriateness of scope and focus highly; FSSA publication rates and public attention have increased.
- Integration with Article IV surveillance is increasing:
  - A large share of surveyed country officials rated the level of integration with the Article IV as adequate or higher.
  - FSAP recommendations increasingly feature substantively in Article IVs, with follow-up extending beyond the initial FSAP year.
- Areas for further improvement identified in surveys:
  - IMF Executive Directors called for increased attention to FSAP assessments in their deliberations.
  - Article IV mission chiefs prefer FSAP teams to provide analytical tools for ongoing monitoring of financial sector risks.
  - Country officials noted implementation can be diluted by lack of political support, technical disagreements, and capacity constraints.
  - Practical options to increase traction:
    - Include a special section in the FSSA summarizing the views conveyed by the authorities to support ownership and clarify impediments to implementation.
    - Outreach to broader government agencies, experts, and legislators to build political support for implementing FSAP recommendations.

*Source: 2021 FSAP REVIEW—BACKGROUND PAPER ON TRACTION*

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_Source: https://www.imf.org/-/media/files/publications/pp/2021/english/ppea2021042.pdf_