## Republic of San Marino — Financial System Stability Assessment (FSAP mission, November 4–18, 2009; approved February 3, 2010)

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### Mission, scope, and context
- Financial System Stability Assessment prepared by the Monetary and Capital Markets and European Departments based on an IMF FSAP mission that visited San Marino during November 4–18, 2009.
- Assessments focus on stability of the financial system as a whole and do not cover institution-specific operational or legal risks, or fraud.
- Mission approved by José Viñals and Marek Belka; approved February 3, 2010.

### System overview and recent macro-financial developments
- Banking sector size and structure:
  - Total assets: €11.5 billion as of end-June 2009.
  - Banking sector represents close to nine times GDP.
  - Number of banks: 12; the largest is Cassa di Risparmio di San Marino (CRSM) with a third of banking sector assets.
  - Top three banks account for almost three quarters of total assets and deposits.
  - Six banks are majority foreign-owned; proportion of assets in Sammarinese banks owned by foreign banking groups: 25 percent.
- Intermediation and liabilities:
  - Lending to the nonfinancial private sector ≈ half of banking assets; remainder mostly placed with Italian banks or in foreign securities.
  - Main funding: Sammarinese and Italian nonfinancial customer deposits.
  - At end-2008, over 60 percent of deposits were held by nonresidents.
  - At end-June 2009, the 10 largest depositors at each bank held 15 percent of all deposits; the largest 10 non-resident deposits accounted for 8 percent.
- Macroeconomic developments and fiscal outlook:
  - Q4 2008 growth: -6.8 percent Q/Q; 2008 growth: -1.1 percent.
  - 2009 projected growth: -5 percent.
  - Unemployment rate expected to reach 5.1 percent in 2009.
  - Inflation: 2.3 percent in July 2009.
  - Central government balance expected: -4.3 percent of GDP in 2009 and -3.4 percent of GDP in 2010.
  - Financial sector accounts for about 10 percent of total government revenues.
- Institutional and reputational context:
  - MONEYVAL: critical AML/CFT assessment in 2007; Compliance Enhancing Procedure lifted September 2009; next on-site mutual evaluation planned March 2010.
  - OECD: grey list April 2009; moved to OECD ‘white list’ in September 2009.
  - Italy tax amnesty: initial disclosure deadline December 15, 2009 (extended to April 2010 on December 16, 2009).
  - Cross-border judicial actions and investigations in 2008–09 affected bank management; Bank of Italy actions related to CRSM and Delta Financial Group; Fitch downgraded sovereign to AA- and CRSM to BBB- during 2009.

### Capital adequacy, asset quality, and vulnerabilities
- Capital adequacy:
  - Official average risk-weighted CAR: 15.4 percent as of end-June 2009.
  - FSAP team adjustments for revaluation of non traded equity holdings: CAR = 11.0 percent.
  - Two banks with over a third of total assets may have CARs below 7 percent.
  - Another bank’s CAR would fall below 11 percent required for all banks by 2013.
- Asset quality and concentrations:
  - Nonperforming loans (NPLs) to total loans: 2.4 percent in 2008 and 2.4 percent in 2009.
  - Provisioning to total loans: 2.7 percent in 2008 and 2.8 percent in 2009.
  - Provisioning to total NPLs: 113.8 percent in 2008 and 113.7 percent in 2009.
  - Single largest customer loan at each bank combined > a quarter of total loans; largest 10 loans at each bank > 40 percent of total.
  - Direct claim on Delta represents over six times the largest bank’s capital; if 16 percent of direct exposure to Delta lost, the parent bank would be insolvent.
- Major vulnerabilities identified:
  - Large withdrawals of deposits, particularly by Italian depositors, aggravated by Italian tax amnesty and criminal investigations including ML.
  - Deterioration in loan quality, amplified by concentrated lending exposures.
  - Exposure to potential collapse of Italian banks to which San Marino banks are exposed.
  - Liquidity risk compounded by absence of Eurosystem access and limited CBSM resources to act as lender of last resort.

### Liquidity, stress testing, and system resilience
- Liquidity environment and payment access:
  - San Marino uses the euro under a Monetary Agreement with Italy; CBSM is not a Eurosystem member and does not have direct access to ECB refinancing facilities.
  - Domestic payment system: Rete Interbancaria Sammarinese (RIS); international payments via correspondent banks and SWIFT; indirect TARGET2 access via Italian clearing.
  - CBSM has a modest lending facility; used to provide a € 100 million loan to the largest bank.
- Deposit outflows and stress-test findings (key outcomes preserved verbatim):
  - If outflows reach 14 percent of total deposits and securities, the largest bank would have to start liquidating customer loans if Delta-associated securities were unmarketable.
  - If Delta securities were marketable, outflows could reach one third of deposits before that bank would have to liquidate loans.
  - If outflows reach 29 percent of total deposits and securities, over a third of banking system assets would be in insolvent banks.
  - Situation would not worsen much until outflows increased to well over 50 percent—at which point some large banks would start to fall below the 7 percent CAR or become insolvent.
  - If discounts on securities and loans increased to 10 and 75 percent respectively, an outflow of as little as 15 percent of deposits could make the largest bank insolvent.
  - Tests suggest the banking system could withstand an additional 20 to 25 percent of the outflows recorded as of December 15, 2009.
- Liquidity buffers and mechanisms discussed:
  - Voluntary intermediation via CBSM deposit/lending between banks (transfers risk to CBSM).
  - Lines of credit / repo operations using CBSM portfolio (CBSM portfolio small relative to sector).
  - CBSM repo operations using securities borrowed from domestic banks (practical constraints).
  - Mandatory remunerated reserve deposit introduced by law on December 3, 2009: banks to place 8 percent of all deposits with the CBSM (temporary, ending January 2010; applies to interbank and customer deposits).
  - As of December 15, 2009 about 29 percent of total deposits and related investments had benefited from the tax amnesty, with an impact on banks’ liquidity of € 2.3 billion; at least an additional € 220 million expected to be repatriated to Italy before June 15, 2010.
- Liquidity stress-test scenarios (complementary box, aggregate and bank-by-bank):
  - Cumulative Net Cash Balance after 30 business days scenarios provided for Delta assets immobilized (“a”) and Delta assets recoverable at 75 percent (“b”), with daily outflow rates and resulting balances (figures preserved in detail in the source).

### Supervisory framework, governance, and capacity
- CBSM governance and accountability issues:
  - Governance includes a chairman, Governing Council (GCCB), and Director General of the Central Bank of San Marino (DGCB); DGCB is chief executive and chairman of a supervision committee (SCCB).
  - Current statute and arrangements create weak accountability, ambiguity in reporting lines, and potential political influence.
  - Recommended governance reforms include: adopt a fully professional and disinterested GCCB; give DGCB full membership in GCCB; clarify accountability to the Grand and General Council of San Marino (GGCSM); remove SCCB reference in statute; give DGCB protection against arbitrary dismissal; remove State Congress role in licensing decisions.
- Supervisory powers, practice, and resources:
  - Law no. 165 of 2005 and related regulations provide most necessary supervisory powers, but enforcement incomplete and gaps remain (market risk, interest rate risk in the banking book, operational risk capital requirements).
  - Minimum risk-weighted capital ratio: 11 percent (CBSM); Basel minimum referenced: 8 percent.
  - Transitional arrangements allow phased implementation over five years; some transitional permissions cover up to a third of banking system assets.
  - On-site inspections: only two full-scope bank inspections since 2006; 11 inspections of nonbank financial institutions.
  - Supervisory manuals not finalized; CBSM has not defined required resources for supervision.
  - Recommended supervisory actions include finalizing supervision manuals, completing a first round of visits, introducing a formal supervisory methodology, and securing necessary resources and staffing.
- Cross-border cooperation and secrecy provisions:
  - Article 36 of Law no. 165 and related secrecy provisions restrict disclosure and complicate foreign supervisors’ access and parent bank information flows.
  - Recommendation: amend rules to allow foreign supervisors to conduct on-site visits of subsidiaries, allow foreign-owned banks to provide information to parent banks and home supervisors, and simplify requirements about confidentiality equivalence and onward disclosure.

### AML/CFT findings and recommendations
- Progress and remaining challenges:
  - Post-2008 reforms: new AML/CFT law, FIA established as operationally independent within CBSM, bearer passbooks prohibited and phased out, mechanisms for corporate ownership transparency instituted.
  - STRs received by FIA increased steadily during 2007–2009; FIA’s exchange of information with foreign FIUs and provision of MLA have increased.
  - Implementation uneven across the financial sector; legacy customers and fiduciary structures pose heightened ML risk.
- Key weaknesses:
  - Fiduciary companies: fragmented and weak legal/regulatory framework; fiduciaries implicated in ML cases; practices include accepting large cash amounts, handling multiple-endorsed checks, acting as third parties for identification, and use of omnibus accounts.
  - Human resources constraint: FIA, CBSM Supervision Department, and the judiciary understaffed (one investigative judge and two aides responsible for ML).
- Priority AML/CFT recommendations:
  - Increase staffing for the FIA, CBSM supervision units, and the judiciary responsible for AML/CFT.
  - Enhance collaboration and a structured risk-based approach between the FIA and the CBSM for AML/CFT supervision.
  - Ensure stringent customer due diligence (CDD) at all financial institutions, particularly fiduciary companies.
  - Reform fiduciary sector to strengthen ownership transparency and clarify permissible activities; consider limits on omnibus accounts and tightened third-party introduction rules.

### Priority policy recommendations (selected and organized by timing)
- Immediate:
  - Secure contingent emergency lines of credit with other central banks.
  - Recapitalize banks that do not meet prudential requirements.
  - Increase staff of the Financial Intelligence Agency (FIA), the CBSM supervision units and the Judiciary responsible for AML/CFT.
  - Enhance collaboration between the FIA and the CBSM in financial sector AML/CFT supervision.
- Short term:
  - Facilitate cross-border flows of information and allow foreign supervisors to make on-site visits to foreign banks in San Marino.
  - Ensure effective implementation of CDD requirements across financial institutions, particularly fiduciary firms.
  - Introduce measures to facilitate self-insurance among banks.
  - Finalize supervision manuals.
  - Reform fiduciary companies to strengthen transparency in corporate ownership and clarify permissible activities.
- Medium term / Ongoing:
  - Introduce a new governance model for the CBSM.
  - Introduce prudential measures to contain banks' liquidity risks (including minimum liquidity ratios).
  - Upgrade financial regulation, preferably in line with EU practices.
  - Accelerate transition to full compliance with regulations on loan concentration.
  - Seek access to the EU payment system and ECB refinancing facilities.
  - Reconsider some of the FIA's non-core FIU responsibilities given limited human resources.

### Stress testing methodology and key design points
- Base case adjustments:
  - Revaluation of untraded equities as of June 30, 2009 based on independent analysis lowered average risk-weighted CAR from 15.4 percent (official) to 11.0 percent (FSAP-adjusted).
- Test frameworks:
  - Deposit outflow tests considered uniform outflows and alternative exit rates by deposit category; sequence of asset liquidation: deposits with other banks → sell securities → sell customer loans.
  - NPL tests used different percentages of complete losses net of recovery with substandard loans assumed to suffer three times the percentage (up to 100 percent).
  - Loan concentration tests examined losses on the largest single borrower per bank, assuming simultaneous losses across banks.
  - Interest rate stress tests: average interest rate spread on interest-earning assets and liabilities = 1.8 percent; an average 90 basis point increase in cost of funds would reduce net interest income by half.
- Off-balance-sheet treatment:
  - Off-balance-sheet items (guarantees and commitments) included with a 50 percent weight in solvency tests.

### Key statistics and indicators (preserved exactly)
- Total assets: €11,498 million (Total) / 6,913 (Domestic) / 4,585 (Foreign) as of June 30, 2009.
- Loans to customers: 5,433 / 3,880 / 1,553 (consolidated, € millions).
- Bond portfolio and other debt securities: 3,920 / 1,833 / 2,087.
- Due to customers: 3,903 / 2,116 / 1,787.
- Debt Securities (total): 5,496 / 3,335 / 2,161.
- Total capital: 1,126 / 787 / 338.
- Guarantees Given (off-balance sheet): 560 / 449 / 111.
- Commitments (total): 1,856 / 400 / 1,456 (with breakdowns: a) sales and repurchase agreements 1,173 / 191 / 982; b) foreign exchange and securities receivable 252 / 50 / 203; c) foreign exchange and securities to be delivered 212 / 55 / 157; d) other commitments 219 / 105 / 115).
- Assets under management: 585 / 198 / 387.
- Custody and administration of securities (total): 13,854 / 8,157 / 5,697.
- Regulatory capital to risk-weighted assets (percent): 22.8 (2004), 23.1 (2005), 18.9 (2006), 17.5 (2007), 16.9 (2008), 11.0 (2009) 1/ (note: official end-June 2009 CAR reported 15.4 percent; FSAP-adjusted 11.0 percent).
- Nonperforming loans to total loans (percent): 1.0 (2004), 2.2 (2005), 1.9 (2006), 2.1 (2007), 2.4 (2008), 2.4 (2009).
- Provisioning to total loans (percent): 5.0 (2004), 4.4 (2005), 4.5 (2006), 4.7 (2007), 2.7 (2008), 2.8 (2009).
- Provisioning to total NPLs (percent): 499.6 (2004), 205.5 (2005), 240.2 (2006), 226.7 (2007), 113.8 (2008), 113.7 (2009).
- Return On Assets (ROA, percent): 0.8 (2004), 0.2 (2005), 0.9 (2006), 1.2 (2007), 0.8 (2008), 0.3 (2009).
- Return On Equity (ROE) after extraordinary items and taxes (percent): 5.1 (2004), 4.1 (2005), 7.9 (2006), 12.1 (2007), 10.0 (2008), 2.9 (2009).
- Interest margin to gross income (percent): 48.2 (2004), 47.8 (2005), 46.9 (2006), 43.9 (2007), 43.5 (2008), 44.3 (2009).
- Liquid assets to total assets (percent): 53.5 (2004), 51.0 (2005), 42.5 (2006), 41.9 (2007), 42.0 (2008), 41.3 (2009).
- Liquid assets to short-term liabilities (percent): 78.9 (2004), 90.4 (2005), 90.3 (2006), 96.3 (2007), 103.5 (2008), 97.9 (2009).
- Net profit in 2008: €47m; nonbank sector contribution to 2008 net profit: €8.3m.
- CBSM minimum risk-weighted capital ratio: 11 percent.
- Rule limiting total deposits to 200 times free capital.
- Inspections since 2006: two full-scope bank inspections; 11 inspections of nonbank financial institutions.
- Nonbank financial sector: about 56 firms (52 finance and fiduciary companies, two asset management companies, two insurance companies).

### Policy-relevant implications and supervisory priorities
- Preserve liquidity and access:
  - Secure contingent external liquidity lines and formalize arrangements to gain access to Eurosystem refinancing and payment systems via agreements with Italy.
  - Maintain and operationalize temporary liquidity measures with clear exit strategies; consider self-insurance funds and external sovereign instruments prudently.
- Capital and resolution preparedness:
  - Recapitalize banks that do not meet prudential minimums immediately; CRSM recapitalization plan mid-January 2010 envisaged capital injection of € 100 to € 150 million and issuance of medium term bonds to bring CAR above 11 percent.
  - Prepare resolution frameworks and examine optimal bank sizes relative to GDP.
- Strengthen supervision and governance:
  - Enhance CBSM independence, governance, accountability, and resources; finalize supervision manuals; introduce formal supervisory methodology; complete on-site inspection program.
  - Accelerate transition to full compliance with loan concentration and large exposure regulations.
- AML/CFT and fiduciary sector reforms:
  - Increase staffing for FIA, CBSM supervision, and judiciary; coordinate FIA–CBSM enforcement; reform fiduciary company regulation to ensure beneficial ownership transparency and restrict high-risk practices.
- Market and structural reforms:
  - Upgrade regulation in line with EU practices; plan medium-term financial services strategy focusing on comparative advantages and required skillsets; consider temporary easing of recruitment constraints to acquire needed expertise.

*Prepared by the FSAP mission (Brenda González-Hermosillo, Joseph Crowley, Samer Saab, Giuseppe Lombardo, Richard Pratt, Maria Alessandra Freni) based on the IMF mission to San Marino, November 4–18, 2009; approved February 3, 2010.*

### 2010. The views expressed in this document are those of the staff team and do not necessarily reflect

### Republic of San Marino — Financial System Stability Assessment

### Mission and document context
- Financial System Stability Assessment prepared by the Monetary and Capital Markets and European Departments.
- Based on an IMF Financial Sector Assessment Program (FSAP) mission that visited San Marino during the period November 4 to 18, 2009.
- Approved by José Viñals and Marek Belka; February 3, 2010.
- FSAP assessments focus on stability of the financial system as a whole and do not cover institution-specific risks such as operational or legal risks, or fraud.

### Key findings and system overview
- The banking sector in San Marino is small in absolute terms, but represents close to nine times GDP.
- Lending to the nonfinancial private sector represents about half of banking assets; the remainder is mostly placed with Italian banks.
- Sammarinese and Italian nonfinancial customer deposits constitute the main financing source.
- Bank performance is under pressure from the global economic crisis and a rise in operating costs.
- The nonbank financial sector consists of just over 50 small companies; it is embryonic but has growth potential and needs better regulation, notably on customer due diligence (CDD).
- There is no stock exchange or other major financial market in San Marino.

### Capital adequacy and vulnerabilities
- Official data indicate the average risk-weighted capital adequacy ratio (CAR) of the banking system was 15.4 percent as of end-June 2009.
- FSAP team adjustments that take into account the revaluation of non traded equity holdings bring that figure down to 11.0 percent.
- Two banks with over a third of total banking sector assets may have CARs below 7 percent; banks that do not meet the prudential minimum should be recapitalized immediately.
- Major vulnerabilities identified:
  - Large withdrawals of deposits, particularly by Italian depositors, aggravated by an Italian tax amnesty and investigations related to criminal activities including money laundering (ML).
  - Deterioration in loan quality, amplified by concentrated lending exposures.
  - Exposure to potential collapse of Italian banks to which San Marino banks are exposed.

### Stress testing and liquidity
- Stress tests indicate main vulnerabilities relate to deposit outflows and deterioration of credit quality; these risks are particularly high for the largest bank.
- Most banks are liquid and would be resilient to outflows if they can liquidate securities portfolios or borrow from more liquid banks; the largest bank is vulnerable due to uncertainty about liquidity of a large share of its securities portfolio.
- Deposit outflows could be permanent, potentially resulting in a contraction of the banking sector with significant macroeconomic and fiscal impact.
- Banks are not vulnerable to exchange rate risk because almost all assets and liabilities are denominated in euros.
- There is no effective mechanism to provide liquidity to banks: San Marino uses the euro but is not a member of the European System of Central Banks; short-term repo or central bank lending facilities are not currently available and the CBSM has insufficient resources to act as a lender of last resort.

### Regulation, supervision, and institutional issues
- The Central Bank of San Marino (CBSM) has made commendable efforts to implement new laws and regulations approaching international standards, but supervisory practices still need enhancement.
- The regulatory regime is not yet fully enforced, gaps remain, and the CBSM needs more resources.
- The CBSM has performed only two full-scope on-site bank inspections because of limited resources; there have been more limited on-site inspections of banks and full inspections of financial and fiduciary companies.
- Governance of the CBSM needs enhancement: ambiguities in lines of accountability compromise independence; a new governance model should introduce a fully professional and disinterested Governing Council and clearer accountability.
- San Marino needs to upgrade financial regulation, preferably in line with EU practices, and strengthen supervision and enforcement; authorities should accelerate transition to full compliance with loan concentration regulations.

### Anti-Money Laundering / Combating the Financing of Terrorism (AML/CFT)
- San Marino achieved considerable progress in bringing its AML/CFT legal framework in line with international standards.
- Implementation and follow-up are still required; legacy customers accepted when AML/CFT policies were weak present ongoing challenges.
- Recommendations include increasing staffing for the Financial Intelligence Agency (FIA), enhancing collaboration between the FIA and the CBSM in AML/CFT supervision, and ensuring stringent CDD at all financial institutions, in particular fiduciary companies.

### Priority recommendations (selected from the report)
- Immediate:
  - Secure contingent emergency lines of credit with other central banks.
  - Recapitalize banks that do not meet prudential requirements.
  - Increase staff of the Financial Intelligence Agency (FIA), the CBSM supervision units and the Judiciary responsible for AML/CFT.
  - Enhance collaboration between the FIA and the CBSM in financial sector AML/CFT supervision.
- Short term:
  - Facilitate cross-border flows of information and allow foreign supervisors to make on-site visits to foreign banks in San Marino.
  - Ensure effective implementation of CDD requirements across financial institutions, particularly fiduciary firms.
  - Introduce measures to facilitate self-insurance among banks.
  - Finalize supervision manuals.
  - Undertake reform of fiduciary companies to strengthen transparency in corporate ownership and clarify permissible activities.
- Medium term / Ongoing:
  - Introduce a new governance model for the CBSM.
  - Introduce prudential measures to contain banks' liquidity risks.
  - Upgrade financial regulation, preferably in line with EU practices.
  - Take all possible steps to accelerate the transition period to full compliance with regulations on loan concentration.
  - Seek to obtain access to the EU payment system, and ECB refinancing facilities.
  - Reconsider some of the FIA's non-core FIU responsibilities in light of limited human resources.

### Risk assessment highlights (from the risk matrix)
- Large withdrawals of deposits (particularly Italian): overall assessment high; likelihood of severe realization sometime in the next three years assessed medium; expected impact on financial stability if realized assessed medium to high depending on asset liquidity and bank size.
- Worsening of loan quality: assessment medium likelihood; expected impact high given exposures large relative to GDP and high loan concentration.
- Collapse of an Italian bank to which San Marino banks are exposed: assessment medium likelihood; expected impact high because exposures are large compared to GDP.

*Prepared by the FSAP mission (Brenda González-Hermosillo, Joseph Crowley, Samer Saab, Giuseppe Lombardo, Richard Pratt, Maria Alessandra Freni) based on the IMF mission to San Marino, November 4–18, 2009; approved February 3, 2010.*

### 1.      San Marino, a small sovereign enclave in Italy of about 30,000 people, was

### 1.      San Marino, a small sovereign enclave in Italy of about 30,000 people, was

### Recent economic developments and fiscal outlook
- Growth remained positive until a sharp contraction in the last quarter of 2008: -6.8 percent Q/Q, and -1.1 percent for the whole of 2008 (Appendix Table 1).
- The outlook worsened in 2009, with projected growth down to -5 percent.
- The unemployment rate is expected to reach 5.1 percent in 2009.
- Inflation was 2.3 percent in July 2009 and is expected to remain low.
- Public debt is small; the central government balance has been in surplus since 2003, but the slowdown will significantly deteriorate fiscal accounts.
  - Central government balance is expected to be -4.3 percent of GDP in 2009 and -3.4 percent of GDP in 2010.
- The financial sector accounts for about 10 percent of total government revenues.

### Institutional, reputational, and cross-border issues
- MONEYVAL:
  - San Marino received a critical AML/CFT assessment by MONEYVAL in 2007 (report adopted in April 2008).
  - San Marino was subjected to MONEYVAL’s Compliance Enhancing Procedure; MONEYVAL lifted the Compliance Enhancing Procedure in September 2009.
  - Next MONEYVAL on-site mutual evaluation planned for March 2010.
- OECD:
  - In April 2009 San Marino was put on the OECD “grey list”; in September 2009 San Marino was moved to the OECD ‘white list’ of countries that have substantially implemented OECD tax standards.
- Italy relations and tax amnesty:
  - In September 2009 Italy adopted a tax amnesty law allowing disclosure and repatriation before December 15, 2009 (deadline extended to April 2010 on December 16, 2009).
  - On March 31, 2009 the two countries signed a General Economic Cooperation Agreement; the Financial Cooperation Agreement was signed on November 26, 2009; signature of the Protocol amending the March 2002 Convention on Double Taxation was still pending.
- Cross-border judicial actions and bank management investigations in 2008–09 led to arrests (later revoked) of top management of two Sammarinese banks, including Cassa di Risparmio di San Marino (CRSM); related criminal investigations continued.
- The Bank of Italy revoked authorizations granted to CRSM as shareholder of the Delta Financial Group and placed Delta under special administration; CRSM was negotiating with potential buyers of its Delta stake at time of FSAP mission.
- Fitch downgraded San Marino sovereign rating (currently at AA-) and CRSM’s rating (currently at BBB-) three times during 2009 citing concerns over Delta exposure and CRSM’s size relative to the sector and GDP.

### Banking sector structure and key statistics
- The banking sector is small in absolute terms but represents close to nine times GDP (Appendix Table 2).
- Total assets stood at €11.5 billion as of end-June 2009.
- There are 12 banks; the largest is CRSM with a third of banking sector assets.
- Concentration:
  - Top three banks account for almost three quarters of total assets and deposits.
- Ownership:
  - Six banks are majority foreign-owned (including Banca Agricola Commerciale with over a sixth of banking sector assets).
  - The proportion of assets held in Sammarinese banks that are owned by foreign banking groups is 25 percent.
- Intermediation and liabilities:
  - Large share of banks’ assets placed with Italian banks or foreign securities.
  - Banks’ liabilities consist mostly of retail deposits and securities.
- Financial center characterization (Box 1):
  - San Marino is considered an offshore financial center (OFC) given the disproportionate share of the financial sector and high banking secrecy; unusual among OFCs because the sector developed primarily to serve the domestic population and largely Italian residents.
- Lending patterns:
  - Lending to the nonbank private sector represents about half of banking sector assets.
  - Two largest components: loans to nonbank financial companies (which lend mostly abroad) and lending to households.
  - Over the past three years there was a large buildup of assets (net of the large Delta acquisition); household lending grew more slowly than total lending.
- Capital adequacy:
  - Official risk-weighted average CAR was 15.4 percent as of end-June 2009; adjustments for revaluations of untraded equity holdings bring this to 11 percent.
  - Two banks with over a third of total assets may have CARs below the transitional ratio of 7 percent.
  - Another bank’s CAR would fall below the 11 percent ratio required for all banks by 2013.
- CRSM recapitalization plan (mid-January 2010):
  - Capital injection of € 100 to € 150 million from government, local banking sector, Sammarinese private investors, and current shareholders.
  - Issuance of medium term bonds.
  - CRSM indicated the plan would bring the bank’s CAR above 11 percent.

### Nonbank financial sector and markets
- Nonbank sector is embryonic: 2 asset management companies, 2 recently licensed foreign life insurance companies, and over 50 fiduciary, leasing, factoring, and small consumer lending companies.
- Assets and income of these companies have been growing rapidly during the past two years but none is yet of significant size.
- No stock exchange or major financial markets; some recent issuance of bank bonds and a small number of financial or commercial company bonds.

### Vulnerabilities and risks
- Immediate risk: deposit outflows; CBSM’s lack of resources to address moderate liquidity shocks exacerbates risk.
- Liquidity and interbank:
  - Although many banks have adequate liquidity, they are generally not willing to lend to other banks.
  - No effective market mechanism to provide or manage liquidity; no established interbank market; interbank lines are not the norm.
- Nonresident deposit concentration and large deposit concentration:
  - At end-2008, over 60 percent of deposits were held by nonresidents.
  - At end-June 2009, the 10 largest depositors at each bank held 15 percent of all deposits in Sammarinese banks; the largest 10 non-resident deposits accounted for 8 percent.
- Income sensitivity:
  - In 2008 net interest income for banks was approximately three quarters of total gross income.
  - A significant share of net interest income results from accepting deposits at low rates and placing them outside San Marino at better rates; permanent outflows would mostly eliminate this spread.
- Credit quality and concentration:
  - Rapid lending growth over past three years coincided with an increase in NPLs.
  - Most lending is collateralized and banks have adequate loan-loss provisions, but regional economic deterioration could reduce loan quality.
  - Single largest customer loan at each bank combined adds up to over a quarter of total loans; largest 10 loans at each bank account for over 40 percent of total.
  - Customer loan concentration and exposure to Italian banking sector are material vulnerabilities.
- Exchange rate risk:
  - Banks are not exposed to exchange rate risk; vast majority of assets and liabilities are in euros.

### Stress testing results (summary)
- Tests covered deposit outflows, adverse credit quality movements, and interest income shocks; alternative liquidity test considered different outflow rates for different deposit types.
- Base case incorporates adjustments to end-June 2009 data reflecting revaluations of untraded equity holdings based on independent assessments.
- Liquidity outflow findings:
  - If outflows reach 14 percent of total deposits and securities, the largest bank would have to start liquidating customer loans if Delta-associated securities were unmarketable.
  - If Delta securities were marketable, outflows could reach one third of deposits before that bank would have to liquidate loans.
  - If outflows reach 29 percent of total deposits and securities, over a third of banking system assets would be in insolvent banks.
  - Situation would not worsen much until outflows increased to well over 50 percent—at which point some large banks would start to fall below the 7 percent CAR or become insolvent.
  - If discounts on securities and loans increased to 10 and 75 percent respectively, an outflow of as little as 15 percent of deposits could make the largest bank insolvent.
- Asset valuation and Delta exposure:
  - Value uncertainty of Delta Group is a major vulnerability for the largest bank.
  - Direct claim on Delta represents over six times the bank’s capital.
  - If 16 percent of the value of the direct exposure to Delta were lost, the parent bank would be insolvent.
  - A large share of the parent bank’s loan portfolio (equal to over seven times the parent bank’s capital) was recently bought from Delta and could be less sound.
- Credit deterioration and borrower concentration:
  - Most banks significantly vulnerable to potential deterioration in credit quality from customer loans and loans to banks.
  - If a quarter of the largest loan at each bank had to be written off, two thirds of banking system assets would be in banks below 7 percent CAR and almost half would be in insolvent banks.
- Income decline vulnerability:
  - If net interest income declined by half, gross income of the banking system would decline by about a quarter.

### Structural sustainability and medium-term recommendations
- Full participation in global financial markets requires full adoption and implementation of international regulation and transparency standards; this transition will undermine the traditional business model based on confidentiality and light regulation.
- Transition will take considerable time before gains from enhanced regulation are fully realized despite CBSM efforts.
- Recommended medium-term strategy for financial services:
  - Develop a medium-term plan for financial services focusing on comparative advantages while complying with international standards.
  - Acquire new skills (possibly investment advice or other wealth management services).
  - Remove, at least temporarily, constraints on recruitment of staff from abroad.
  - Carefully review entry conditions for new industries, including licensing requirements, to balance development with soundness.
  - Examine the optimal (smaller) size of banks relative to GDP to contain systemic risks and ensure manageable resolution frameworks.

### Risk management, safety net, and market infrastructure
- Liquidity monitoring and requirements:
  - Prior to the 2009 Italian tax amnesty there were only a few liquidity requirements; CBSM now actively monitors banks’ liquidity positions with daily reports and issued guidelines broadly following Basel principles.
  - Introduction of minimum liquidity ratios is advisable to ensure sufficient liquid assets to cover withdrawal of short-term deposits.
- Market mechanisms and interbank:
  - CBSM does not have an effective market mechanism to provide/manage liquidity; no established interbank market.
  - Several banks indicated unwillingness to provide domestic interbank lines without CBSM guarantees.
- Liquidity conditions at FSAP:
  - Aggregate liquidity was adequate but some individual banks faced strains.
  - Some domestic banks were unable to secure lines of credit from domestic counterparts; foreign banks obtained credit from foreign parents.
  - One domestic bank arranged a modest lending facility from another local bank, seemingly related to potential merger plans.
- Tax amnesty impact on liquidity:
  - As of December 15, 2009 about 29 percent of total deposits and related investments had benefited from the tax amnesty, with an impact on banks’ liquidity of € 2.3 billion.
  - At least an additional € 220 million was expected to be physically repatriated to Italy before June 15, 2010.
- Deposit withdrawal record:
  - To date, all banks met depositors’ requests for withdrawals, but extension of the tax amnesty until end-April 2010 could lead to continuing pressures.

*IMF staff report excerpt (San Marino) — content from the supplied PDF chapter/section.*

### 35.      Several mechanisms to provide and allocate liquidity were discussed with the

### _cr10317 - 35.      Several mechanisms to provide and allocate liquidity were discussed with the

### Liquidity mechanisms discussed with the CBSM
- Measures considered included both quick-implementable options and measures that would require time to develop.
- Authorities were warned about risks that transfer risk to the CBSM (and hence to the government), and about involuntary schemes based on capital controls that could discourage depositors from coming to San Marino.
- Measures to prevent or contain a systemic liquidity crisis should be temporary and include a thought-out plan to unwind them when conditions stabilize.

### Near-term schemes envisaged by the CBSM to contain liquidity pressures
- Voluntary, incentive-based intermediation:
  - Banks with excess liquidity could deposit those funds with the CBSM at a competitive rate; CBSM could lend them to banks facing liquidity needs.
  - This facility would shift liquidity risk, and potentially credit risk, to the CBSM, ultimately bearing risk by the Sammarinese government.
- Lines of credit / repo operations using CBSM portfolio as collateral:
  - Establish lines of credit or repo operations with the BIS, other central banks, or foreign banks using CBSM’s own portfolio as collateral.
  - CBSM’s portfolio is described as high grade quality (largely composed of sovereign bonds and AA securities) but is small relative to the Sammarinese banking sector and would only be able to finance moderate liquidity needs.
- CBSM repo operations using securities borrowed from domestic banks:
  - CBSM could borrow securities owned by domestic banks and repo them with foreign counterparts.
  - Practical constraint: banks themselves cannot do this directly with offshore counterparties, or with foreign banks established in San Marino, indicating the quality of these securities may not be high.

### Other measures considered to contain liquidity pressures and improve future liquidity management
- Mandatory remunerated reserve deposit:
  - Introduce requirement that banks deposit reserves with the CBSM at remunerated market rates.
  - Subsequent to the FSAP mission, a law introduced on December 3, 2009 required banks to place 8 percent of all deposits collected in an account with the CBSM that will be remunerated.
  - Any liquidity assistance provided to another bank would be taken into account in the computation of the funds required to be deposited with the CBSM.
  - This measure is deemed to be temporary, ending in January 2010. It applies to interbank deposits as well as customer deposits. Deposits required to be held with the CBSM will be blocked for the whole (monthly) maintenance period, but derogation to the general requirement may be granted based on demonstrated liquidity stress.
  - Authorities indicate the measure has contributed to an appropriate redistribution of liquidity in the system and has thus far helped avert a liquidity crisis.
- Issue external sovereign bonds and use proceeds to guarantee illiquid but solvent financial institutions:
  - Merit in building a sovereign reserve cushion given very low level of foreign government debt, but doing this during peak banking pressures may be quite costly.
- Self-insurance fund:
  - Financial institutions could contribute proportionally to a liquidity insurance fund administered by the CBSM to guarantee retail deposits in Sammarinese banks.
- Financial agreement with Italian authorities:
  - Secure agreement such that Sammarinese banks can access Eurosystem refinancing facilities and payment systems (through the Bank of Italy).
  - Likely only implementable over time because a monetary agreement would need to be reached with Italy and the European Community.

### Payment system (institutional, legal, and regulatory frameworks)
- Currency and issuance:
  - San Marino uses the euro according to the Monetary Agreement between San Marino and Italy on behalf of the European Community.
  - The CBSM does not issue euros except for commemorative coins minted on rare occasions; it does not perform other monetary policy functions such as management of reserves, open market, or foreign exchange operations.
  - Banknotes and coins are provided by the Italian Central Bank through an Italian commercial bank authorized to transmit them to the CBSM.
- Domestic payment system:
  - San Marino has a domestic payment system monitored by the CBSM that works on a gross settlement basis with rules on settlement finality.
  - All San Marino banks keep specific accounts centralized with the CBSM and participate in Rete Interbancaria Sammarinese (RIS).
- International payment access:
  - CBSM executes payment transactions with foreign countries through a network of correspondents; SWIFT assures international interbank communication.
  - CBSM participates in the Italian clearing system for low-value euro payments (BI-COMP) and has indirect access to TARGET2.
  - San Marino commercial banks access the European payment system indirectly through Italian or European correspondent banks.
  - Of the 12 banks, 10 have CBSM authorization to execute international payment transactions and currency activities; in practice, access is provided via two correspondent Italian banks. Two Sammarinese banks owned by large Italian banks receive payment services through their banking groups.

### Governance of the CBSM and supervisory structure
- Institutional arrangements:
  - The CBSM governance includes a chairman, a Governing Council of the Central Bank of San Marino (GCCB), and a Director General of the Central Bank of San Marino (DGCB).
  - The DGCB is chief executive and chairman of a supervision committee (SCCB).
  - Current arrangements result in weak accountability, ambiguity in reporting lines, inadequate resources, and inappropriate political influence over regulatory decisions.
- Accountability and statute issues:
  - Statute unclear about accountability between GCCB and SCCB; SCCB does not regard itself as formally accountable to GCCB, creating uncertainty about DGCB and Chairman relationships.
  - Absence of clear lines of responsibility makes it impossible to develop proper accountability to parliament.
  - Statute has strong provisions limiting GCCB members’ conflicts of interest, but small-jurisdiction links to banks make personal/commercial links difficult to avoid.
  - Supervisory powers given to SCCB minimize conflict but at expense of clarity about accountability.
- Recommended governance reforms:
  - Adopt a new governance model with a fully professional and disinterested GCCB; consider appointment of foreign members using an open and transparent process.
  - Give the DGCB full membership in the GCCB and remove the Committee for Credit and Savings (CCS) role in nominating GCCB members.
  - Hold the GCCB accountable to the Grand and General Council of San Marino (GGCSM) for performance.
  - Clarify accountability by giving GCCB full responsibility for all CBSM functions and remove reference to the SCCB in the CBSM Statute; GCCB may delegate day-to-day decisions to DGCB and/or internal executive committees.
  - Increase CBSM independence: revise Law no. 165 to remove the role of the State Congress in licensing decisions; base licensing solely on prudential assessment and fitness and properness of applicants and key staff.
  - Amend Article 101 of Law no. 165 to clarify CCS can only set CBSM high level objectives (as provided in Article 48 of the CBSM Statute).
  - Give the DGCB statutory protection against arbitrary dismissal.
- Funding and resources:
  - CBSM currently relies on fees from supervised entities (€1 million), trading income (€6 million) and fees for banking services to the government (€3 million) as part of an agreement the government has not renewed.
  - CBSM funds but has no control over the budget of the Financial Intelligence Agency (FIA).
  - Supervisory costs should be covered by fees and government subventions (the latter guaranteed for a three year term, subject to fiscal emergencies).
  - Costs of providing services and of the FIA should be reimbursed by the Government in full on the basis of audited accounts.

### Supervisory effectiveness and capacity
- Regulatory framework:
  - CBSM has drafted new regulations and created a regulatory regime that approaches international standards, but implementation is taking time.
  - Law and regulations provide most necessary supervisory powers and a reasonably comprehensive framework, but enforcement is incomplete and gaps remain (notably international cooperation and provisions for market risk, interest rate risk, and operational risk capital requirements).
  - Key requirements on risk-based capital, large exposures, and connected lending are subject to five year transitional provisions.
- Supervisory techniques and resources:
  - CBSM has performed only two full-scope on-site bank inspections because of limited resources; several more limited on-site inspections and full inspections of financial and fiduciary companies have been undertaken.
  - Supervisory manuals for on-site and off-site supervision are not complete, though staff understand their roles and inspections have been effective.
  - CBSM has not adopted a policy on the level of on-site visits it considers necessary and cannot state required resources.
  - Recommendations:
    - Quickly finalize manuals for supervision and a model for analyzing bank risks.
    - Complete a first round of visits to banks to assess resources required for proper supervision.
    - Authorities must provide necessary resources for CBSM to perform its duties.

### Cross-border collaboration and legal information exchange
- International cooperation progress:
  - San Marino has made solid progress on international cooperation, as acknowledged by the OECD.
  - Further efforts needed to establish or reinforce bilateral relations.
  - A critical agreement with Italian authorities outlining conditions for San Marino banks to gain direct access to the EU payment system was signed; CBSM has signed no other MoUs except one on supervision with the National Bank of Croatia.
- Facilitating cooperation:
  - Negotiation of cooperation agreements would be facilitated by adopting and implementing a sound regulatory framework consistent with rules and supervisory approaches in Italy and the EU.
  - Banking law should unambiguously allow subsidiaries of foreign-owned banking groups to provide complete information to parent banks.
  - The bill on the scope of bank secrecy should be approved without delay and CBSM should be empowered to exchange information more freely.

### Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT)
- Vulnerabilities and past environment:
  - Level of domestic-generated proceeds of serious crime is low, but San Marino is vulnerable to laundering proceeds of crimes committed abroad (mostly in Italy), predominantly related to tax evasion and other serious predicate crimes (such as drug trafficking, mafia-type criminal organization, illegal banking activities, fraudulent bankruptcy and fraud).
  - Past factors favorable to ML included strict financial secrecy, opportunities to hide beneficial ownership, anonymous financial instruments, predominant use of cash, and widespread use of checks with multiple endorsements.
- Reforms and improvements:
  - Following the 2008 MONEYVAL report, authorities enacted a 2008 AML/CFT law and FIA regulations establishing a modern, risk-based AML/CFT regime and made significant improvements.
  - FIA established as an operationally independent agency within the CBSM.
  - Financial secrecy privileges can no longer be invoked in AML/CFT inquiries; bearer passbooks prohibited and phased out; mechanisms for corporate ownership transparency established; cross-border currency transport must be declared; use of cash and multiple endorsement checks restricted.
  - FIA undertook several on-site inspections; certificate of deposits in bearer form were prohibited and reimbursement of large ones already in circulation require reporting to an AML/CFT compliance officer.
  - Financial institutions, especially banks, have begun implementing new AML/CFT requirements with mixed results.
  - STRs received by the FIA increased steadily during 2007-2009. FIA’s exchange of information with foreign FIUs and provision of MLA have increased.
- Remaining weaknesses and recommendations:
  - Implementation of new requirements is uneven across the financial sector.
  - Special attention needed on verification of customers’ sources of funds and customers’ risk-based profiling, especially for legacy customers and non-resident customers.
  - Effective CDD and ready availability of comprehensive client information are paramount for financial institutions and authorities for financial analysis, criminal investigations, and supervision.
  - FIA and CBSM should coordinate enforcement efforts, adopt a more structured and risk-based planned approach, and provide clearer guidance on what constitutes a high-risk customer.
- Role of fiduciary companies:
  - Fiduciary companies contribute significantly to ML cases; legal and regulatory framework governing them remains fragmented and weak.
  - Mechanisms to ensure transparency in ownership of fiduciary companies should be enhanced and the scope of their activities clarified.
  - Issues identified include fiduciaries accepting large cash amounts, handling abnormally large volumes of multiple-endorsed checks, acting as third parties for customer identification, and financial institutions applying simplified due diligence to accounts opened by fiduciaries on behalf of clients.
- Human resources constraint:
  - Authorities’ AML/CFT commitment undermined by scarce human resources affecting the FIA, the CBSM Supervision Department, and the judiciary (currently only one investigative judge and two aides responsible for ML).
  - CBSM and FIA have signed a MoU on supervision but need a more structured and risk-based planned approach.

### Annex — Observance of Financial Supervision Standards and Summary assessment
- Assessment context:
  - Annex contains a summary assessment of observance of the Basel Core Principles for Effective Banking Supervision (BCP) conducted as part of the FSAP evaluation of the San Marino financial system from November 4 to November 18, 2009.
  - Assessment used the BCP methodology issued in October 2006 and was conducted by Mr. Richard Pratt (IMF consultant) and Ms. Maria Alessandra Freni (expert from the Bdi).
- Sources and methodology:
  - Based on a self-assessment of compliance with the 25 BCPs by a CBSM team, legal and regulatory framework, bank annual reports, CBSM guidelines, and numerous other CBSM documents.
  - Assessors held extensive discussions with CBSM supervisory staff, representatives from the Ministry of Finance, and other banking and financial institutions.
- Overall summary finding:
  - The CBSM is developing the bank supervisory regime from a very low base; staff are professional and committed and are starting to conduct on-site and off-site supervisions. Progress has been good, but the CBSM will need enhanced independence, resources, and support over many years to rebuild San Marino’s reputation following a history of limited regulation, bank weaknesses, and apparent malpractice in certain institutions.

*Source: IMF staff report text as provided in the supplied content unit.*

### 60.      The mission followed the 2006 Core Principles methodology (Essential Criteria).

### _cr10317 - 60.      The mission followed the 2006 Core Principles methodology (Essential Criteria).

### Institutional and Macro Prudential Setting, Market Structure—Overview
- The mission reviewed the self assessment and other CBSM data, including the CBSM web site, CBSM statute, the supervisory law, the anti money laundering law and key regulations, and Instructions and Circulars issued by the CBSM and the FIA. The mission met with representatives of the Government, the CBSM, the FIA, banks, fiduciary companies, and securities and accountancy firms.
- The CBSM is the sole regulatory body, instituted in its present form by Law 96 of 2005; comprehensive supervisory powers were imposed by Law 165 of 2005.
- The FIA is responsible for setting and monitoring compliance with detailed AML/CFT obligations for the financial sector.
- CBSM governance and staffing:
  - Governing Council appointed by Parliament; publishes an Annual Report and maintains banking system data on its web site.
  - Staffed by professional, competent, and diligent supervisory staff, but CBSM has insufficient staff overall and has not completed implementation of its supervisory methodology.
  - Supervisory model and manuals are incomplete; few full inspections of banks; full independence is compromised by government influence over budget and certain core functions (e.g., licensing).
- Banking sector structure and size:
  - 12 banks, all private.
  - Total banking assets of €11.5 billion (nine times GDP) as of end-June 2009.
  - Three largest banks hold almost three quarters of banking assets between them.
  - Six banks are foreign owned; two banks are members of foreign banking groups.
  - Net profit in 2008 was €47m with the nonbank sector contributing €8.3m.
- Reliance on foreign intermediation and vulnerabilities:
  - External deposits represent a large share of total deposits; large share of banks’ assets are placements with Italian banks or foreign securities.
  - Strict bank secrecy, favorable taxation, light regulatory burden, and free movement of capital (particularly to and from Italy) attract foreign depositors.
  - Vulnerable to policy changes in Italy; an Italian tax amnesty has resulted in a substantial outflow of deposits and a developing liquidity problem.
- Nonbank financial sector:
  - About 56 firms: 52 finance and fiduciary companies, two asset management companies, and two insurance companies.
  - Asset management and insurance companies recently licensed and hold very few assets.
  - Fiduciary and finance companies (mostly bank-owned) hold more assets of the finance sector and employ one third of total staff; experienced high growth in recent years.
  - Financial companies provide leasing and factoring services; Fiduciary companies hold customers assets in their own name.

### Preconditions for Effective Supervision
- Monetary and fiscal context:
  - No independent monetary policy; monetary agreement with the Eurosystem EU.
  - Little public debt; budget heavily reliant on the financial sector which could face a contraction.
- Operational dependencies and labor:
  - Almost totally dependent on foreign infrastructures for payment systems, fund transfers, check processing, financial instrument deposits, commercial receipts, credit cards, and cash.
  - Communications are good; skilled labor in short supply due to strict residency policies and restrictions on hiring non-resident staff without permission.
- Recent economic reforms:
  - Since 2005: commercial sector reforms, updated companies’ legislation, strengthened governance requirements, tax reform to enhance collection and reduce bureaucracy, new labor laws for increased flexibility, pension reform reducing liabilities and increasing contributions.
  - Financial sector faces competition from abroad, particularly Italy.
- Safety nets and central bank capabilities:
  - No deposit insurance developed despite legal provision for one.
  - CBSM has limited ability to function as lender of last resort; issues currency only in rare commemorative euro coins.
  - CBSM has a modest lending facility; used to provide a € 100 million loan to the largest bank.
  - Given large size of bank assets relative to the economy, limited scope for liquidity assistance.

### Main Findings — Summary by Topic and Basel Core Principles
- Objectives, independence, powers, transparency and co-operation (Principle 1)
  - Law no 96 of 2005 sets CBSM objectives and functions; Law no 165 of 2005 details supervisory powers.
  - Complex appointment and governance arrangements undermine full accountability; recommendation to simplify GCCB appointment process to be more open, transparent, and to address conflicts of interest.
  - Independence does not meet international standards:
    - Licensing and certain decisions subject to ultimate approval of State Congress.
    - CCS has powers to influence CBSM (Article 45 of statute and Article 101 of Law no 165).
    - DGCB lacks protection against arbitrary dismissal by the Government.
    - CBSM relies for over half its income on profits from trading and on a Government contract for services which expired in 2008 and has not been renewed.
    - CBSM funds activities of the FIA but has no control over FIA budget — undermines independence.
- Licensing and structure (Principles 2–5)
  - Law provides appropriate licensing powers; authorization criteria reasonably comprehensive (fitness and properness, governance, prudential requirements).
  - CBSM has necessary enforcement powers and powers over acquisitions and nonbank activities.
  - Main weakness: influence of State Congress over licensing decisions.
- Prudential regulations and requirements (Principles 6–16)
  - Minimum risk weighted capital ratio imposed at 11 percent (higher than Basel minimum of 8 percent) and supplemented by rule limiting total deposits to 200 times free capital.
  - No capital requirement for market risk or interest rate risk in the banking book.
  - Regulations on large exposures and related party lending broadly in line with Basel principles.
  - Transitional arrangements allow phasing in capital, related party lending, and large exposures over five years; up to a third of banking system assets are in banks granted this permission.
  - Risk management provisions exist for large exposures and related parties; no specific requirements on country and transfer risks; operational risk requirements are at a high level of generality.
  - Bank directors assigned specific responsibilities for risk management; need for sufficient risk monitoring systems.
  - Liquidity risk provisions introduced recently (2009 circular) with very frequent reporting requirements by maturity categories; effectiveness not yet assessable.
- Abuse of financial services (Principle 18)
  - Substantial body of law and regulations for prevention of money laundering and terrorist financing introduced.
  - Prior to 2008, AML/CFT requirements were not effectively enforced.
  - Current law and regulations are broadly appropriate and aligned with international standard; some banks have begun effective internal programs.
  - Legacy risks from customers on-boarded before current regime; retrospective risk assessments required but information may be difficult to obtain.
  - Fiduciaries under old regulations provided nominee facilities and sometimes accepted cash deposits, complicating provenance tracing; fiduciaries placing funds with banks can transfer risks to banks.
  - CBSM and FIA should coordinate enforcement; they have an MoU and some information sharing, but effectiveness could be enhanced by a jointly planned risk-based approach and additional resources for monitoring compliance.
- Supervisory methods and approach (Principles 17 and 19–23)
  - CBSM has most necessary supervisory tools but insufficient resources to fully undertake its role.
  - Reporting regime provides analyzable information, but only two full-scope bank inspections since 2006 (plus other specific inspections and 11 inspections of nonbank financial institutions).
  - No formal supervisory model (e.g., CAMEL); supervisory manuals incomplete.
  - CBSM distracted by ad hoc judicial investigation requests and urgent banking system difficulties in 2009.
  - CBSM should address governance issues in banks: regulations require Boards to ensure proper internal controls, but weaknesses exist from over-delegation; CBSM should enhance education of Boards and obtain power to remove Boards of Directors as a sanction (subject to appeal).
- Consolidation and cross-border issues (Principles 24 and 25)
  - CBSM does not undertake consolidated supervision; law could inhibit consolidated supervision by foreign supervisors.
  - CBSM proposes to introduce comprehensive consolidated supervision rules, noting limited immediate risk (only one Sammarinese bank has a foreign subsidiary; domestic subsidiaries under CBSM supervision).
  - Article 42 gives only CBSM right of on-site inspection; secrecy provisions in Article 36 of Law no 165 prevent disclosure of confidential information by a bank to anyone except judicial criminal authorities and the CBSM — appear to prevent on-site inspections by foreign supervisors.
  - Foreign-owned banks report not reporting confidential customer information to parent companies nor permitting head office internal audit or compliance staff access to files — consistent with Article 36 prohibition.
  - International cooperation constrained:
    - Secrecy and cooperation provisions create barriers: need for prior agreements, assessment of equivalence of foreign confidentiality regime, and written permission for onward disclosure.
    - These requirements can prevent rapid and effective cooperation and should be simplified to allow full and rapid cooperation that CBSM wishes to offer.

### Key Statistics and Specific Figures
- Banking assets: €11.5 billion (nine times GDP) as of end-June 2009.
- Number of banks: 12 (all private).
- Net profit in 2008: €47m.
- Nonbank sector contribution to 2008 net profit: €8.3m.
- CBSM minimum risk weighted capital ratio: 11 percent.
- Basel minimum capital ratio referenced: 8 percent.
- Rule limiting total deposits to 200 times free capital.
- Transitional phasing: phase in requirements over five years; transitional provisions lasting until 2013 for certain requirements; some transitional regime ends in 2010.
- CBSM lending facility use: € 100 million loan to the largest bank.
- Inspections since 2006: two full-scope bank inspections; 11 inspections of nonbank financial institutions.
- Nonbank financial sector firms: about 56 (52 finance and fiduciary companies, two asset management companies, two insurance companies).

### Table 3 — Summary Compliance Highlights (selected)
- 1.1 Responsibilities and objectives: Responsibilities clearly stated.
- 1.2 Independence, accountability and transparency: Accountability undermined by complex appointment, responsibilities, and reporting lines; Independence compromised by government involvement in key decisions and budget; Budgetary resources constrained particularly by burden of judicial investigations.
- 1.3 Legal framework: Recently introduced and up to date.
- 1.4 Legal powers: All necessary powers provided to CBSM.
- 1.5 Legal protection: Most legal protections provided but DGCM lacks protection against arbitrary dismissal and no explicit provision for paying for staff defenses against legal action.
- 1.6 Cooperation: Domestic cooperation works reasonably well with full exchange of information possible with the FIA (but enhancements possible as noted in Principle 18).
- 6. Capital adequacy: Regulations impose Basel I requirements except for market and banking book interest rate risk; some banks allowed to postpone full implementation of capital adequacy until 2013.
- 12. Country and transfer risks: No specific requirements on these risks, largely because few exposures outside Italy and San Marino itself.
- 14. Liquidity risk: Regulations are on the right lines but only recently introduced; CBSM will need to focus on ensuring implementation.
- 18. Abuse of financial services: New regime being introduced but risks remain from legacy of past practice and limited enforcement staff; better coordination between FIA and CBSM will enhance effectiveness.

*Italic: Source – IMF mission report content provided in the supplied PDF excerpt.*

### 19. Supervisory approach No formal methodology but CBSM shows good

### 19. Supervisory approach No formal methodology but CBSM shows good understanding of the risks facing the banks.

### Supervisory assessment (paragraphs 19–25)
- Supervisory approach: No formal methodology; CBSM shows good understanding of bank risks.
- Supervisory techniques: Limited staff and distraction by other duties has limited the number of full bank inspections. Supervisory manuals are not yet complete.
- Supervisory reporting: Regime is relatively new but appears comprehensive and provides the CBSM with the data it needs for risk analysis.
- Accounting and disclosure: IFRS not yet fully introduced but the CBSM accounting regulation is broadly compatible.
- Corrective and remedial powers: Supervisors have full powers, but Government involvement occurs in some winding up decisions and CBSM cannot remove banks’ Board members when they cease to be fit and proper.
- Consolidated supervision: No comprehensive provisions yet for consolidated supervision.
- Home–host relationships: Secrecy provisions inhibit cooperation, limit information flows for foreign-owned banks, and prevent foreign supervisors from undertaking on-site inspections.

### Recommended Action Plan (selected Core Principles and recommended actions)
- Objectives, autonomy, powers, and resources (1.2 Independence, Accountability & Transparency)
  - Remove role of State Congress in licensing or extraordinary administration and compulsory liquidation.
  - Clarify that the CCS can only give broad objectives.
  - DGCB should have protection against arbitrary dismissal.
  - Reform budget process to give greater certainty to the CBSM, enhance resources, and cover the cost of judicial investigations.
  - Make the nomination process for the GCCB more open and transparent.
  - DGCB should be a full member of the GCCB.
  - Clarify accountability of GCCB and remove reference to SCCB in the Statute.
- Licensing criteria (3)
  - “Good repute” should include absence of disciplinary action by any regulatory or professional body; applicant information should include details of all investigations by such bodies.
- Transfer of significant ownership (4)
  - Require periodic reporting of bank ownership on an annual basis.
  - Require banks to report any material information affecting fitness and properness of owners or beneficial owners.
  - Publish criteria showing how CBSM would judge incompatibility with domestic market structure and needs.
- Major acquisitions (5)
  - Consider adding criterion reflecting quality of supervision in the host country of a foreign acquisition.
- Capital adequacy (6)
  - Set a timetable for the move to a standardized approach under Basel II.
  - Keep under review objective of shortening the transitional period for full compliance with the Capital Adequacy Requirement.
- Risk management process (7)
  - Strengthen corporate governance regulation to require Board assessment of risks and controls regularly, Board approval of new products, internal audit coverage of risk management, staff training in risk management, and stress tests.
- Credit risk (8)
  - Strengthen provisions on evaluation of credit risk policy and importance of monitoring/reporting borrowers, collateral, economic circumstances, total indebtedness, limits on borrowers/sectors, and implementation of limits.
- Large exposures (10)
  - Keep under review objective of shortening transitional period for full compliance with large exposures regulation.
  - Require banks to set thresholds for concentration risk by geographic/economic sectors and report regularly to Boards.
- Exposures to related parties (11)
  - Explicitly include close family members of owners and directors and subsidiaries.
  - Persons benefitting from related party transactions should not participate in decisions about the transaction.
  - Strengthen monitoring and reporting; report all exceptions to the Board.
  - Keep under review objective of shortening transitional period for full compliance with regulation on related parties’ exposures.
- Country risk (12)
  - Require banks to manage country risk.
- Market risk (13)
  - Make early progress on introduction of a capital charge for market risk.
- Liquidity risk (14)
  - Strengthen banks’ liquidity management.
- Operational risk (15)
  - Broaden operational risk framework in Regulations.
  - Move towards introducing a capital charge for operational risk on the lines of Basel II.
- Interest rate risk in the banking book (16)
  - Introduce new Regulations proposed by the CBSM.
- Internal control and audit (17)
  - Require banks to explicitly safeguard assets and liabilities.
  - Ensure internal audit has a proper plan and methodology.
- Abuse of financial services / AML/CFT (18)
  - Require a customer acceptance policy.
  - Strengthen simplified due diligence procedures by specifying required due diligence.
  - Limit third party introductions and simplified due diligence unless bank has analyzed introducer’s due diligence and is satisfied.
  - Require senior management approval to continue accounts when a person becomes a PEP or is found to be one after acceptance.
  - Limit transactions allowed before completion of due diligence or otherwise require risk management.
  - Resolve conflict between primary law requiring ongoing monitoring and FIA Instruction allowing periodic reviews up to two years.
  - Introduce adequate staff screening for high ethical standards.
  - Expand exemptions from bank secrecy in Article 36 to allow disclosure to relevant law enforcement authority of any matter that gave rise to knowledge of financial crime other than ML or TF.
  - Add resources for enforcement; CBSM and FIA to plan enforcement jointly and issue guidance treating customers bringing cash or endorsed checks over a threshold as high risk.
  - Consider prohibiting omnibus accounts from fiduciaries where evidence of inadequate due diligence exists.
- Supervisory approach (19)
  - CBSM should introduce a formal methodology for supervision.
- Supervisory techniques (20)
  - Make a first round of inspections with external support to assess banks’ risks.
  - Assess staff resources needed to form basis of budget and recruitment plan.
  - Finalize supervision manuals.
- Supervisory reporting (21)
  - Introduce consolidated reporting.
- Accounting and disclosure (22)
  - Monitor use of permission to depart from accounting regulation.
  - Introduce IFRS when possible.
  - Consider requiring auditor rotation.
- Corrective and remedial powers (23)
  - Enable CBSM to remove individual corporate officers when no longer fit and proper.
- Consolidated supervision (24)
  - Adopt comprehensive consolidated supervision when priorities allow.
- Home–host relationships (25)
  - Change requirement that foreign supervisors’ confidentiality protection be “at least equivalent to that in San Marino” to “adequate.”
  - Remove requirement that foreign recipients of confidential information give an undertaking not to disclose information to a third party without written permission of the CBSM and remove requirement for an agreement prior to information exchange.
  - Amend Law 165 to allow foreign-owned banks to pass information to their parent bank and home state supervisor.
  - Amend Law 165 to allow foreign supervisors to conduct on-site visits in San Marino of subsidiaries of foreign-owned banks.

### Authorities’ response (paragraphs 82–85)
- Cooperation and AML/CFT
  - Authorities state Law 165 permits foreign on-site visits of foreign-owned banks where a cooperation agreement exists, especially when foreign supervisor is accompanied by CBSM.
  - Authorities agree CBSM should sign more MoUs and expect the Sammarinese–Italian Government agreement to pave the way for a CBSM–BdI MoU.
  - Authorities consider assessment of equivalent confidentiality protection not unduly burdensome in the context of an MoU.
  - Authorities consider Regulation allowing foreign-owned banks to provide information to parent banks fully compliant with Article 36 prohibition on disclosure of confidential information.
  - On AML/CFT, authorities referred to the MONEYVAL report, stated bearer passbooks did not hide identity but enabled transferability, questioned whether mission showed AML/CFT regime was less than fully enforced, and noted fiduciary companies are expected to know beneficial owners.
- Supervisory resource impact
  - CBSM emphasized judicially inspired investigations have been disruptive: such investigations took up a third of on-site inspection resources in 2009 and may rise to 50 per cent in 2010.
- Capital adequacy view
  - Authorities pointed to regulations limiting total deposits to a multiple of free capital and plans to meet EU acquis by 2013 as justification for a more favorable rating for Principle 6.
  - Highlighted rule limiting total direct and indirect deposits to 200 times free capital (the surplus of actual over minimum capital).
- Current developments
  - Authorities negotiating a monetary agreement with the EU involving adopting the EU acquis relevant to the financial sector in full by 2015 and the prudential Directives by 2013 (including extension of Basel II framework).
  - Introduced a reserve requirement for all banks equal to 8 per cent of direct deposits to strengthen liquidity management.

### Stress testing methodology — key design points and findings (Appendix, paragraphs 86–98)
- General approach
  - Tests explored wide ranges to identify levels of stress causing specific thresholds (e.g. half of the assets of the banking system to be in undercapitalized banks) rather than preset scenarios.
- Adjustments to capital
  - Banks’ holdings of untraded equities revalued as of end-June 30, 2009 based on recent independent analysis, lowering the average risk-weighted CAR ratio from the officially reported 15.4 percent to 11.0 percent.
- Deposit outflow tests
  - Two loss types considered: fire sale losses (liquidation at below-market prices) and income loss from lost revenue.
  - Assumed a uniform outflow of customer deposits, deposits by banks, and securities (noting simplification slightly underestimates income loss because demand deposits, the least expensive financing, would flow first).
  - Assumed deposit-with-bank assets sell at lowest discount, followed by securities and then customer loans. Sequence of asset liquidation: withdraw deposits with other banks, sell securities, then sell customer loans.
  - A second set of tests assumed different exit rates by deposit category: highest for deposits with the CRSM, then foreign deposits at other banks, then domestic deposits at other banks (aggregate-system only due to data limits).
  - Lost interest income and reduced interest expenditures assumed proportional to outflows; tests on deposit outflows considered immediate impact before lost income effects.
- Nonperforming loan (NPL) tests
  - Tests applied different percentages of complete losses net of recovery on good loans; substandard loans assumed to suffer the same percentage times three (up to 100 percent), per agreement with CBSM.
  - Average recovery on bad loans was 58 percent in 2008, so a stress test loss of 10 percent would correspond to over 20 percent of all loans failing to be repaid (or alternative provisioning scenarios producing equivalent capital reduction).
  - Data limitations: NPL data collected annually and end-2008 figures used for end-June 2009 tests.
  - Extended tests examined increases in NPLs of large borrowers and sectoral loan losses.
- Loan concentration tests
  - Examined vulnerability to losses on largest single borrower or connected group per bank; losses assumed simultaneous across banks for that borrower—an unlikely but conservative test of individual-bank vulnerabilities.
- Interest rate stress tests
  - Tests examined effects on net interest income.
  - Average interest rate spread on interest-earning assets and liabilities in San Marino is 1.8 percent.
  - An average 90 basis point increase in the cost of funds would reduce net interest income by half.
  - Tests assumed one year of lost interest income; longer periods would have greater impact.
  - Reductions in spreads likely reflect higher costs of funds if San Marino lost banking secrecy and regulatory advantages; decreases in interest earnings are less likely given already low rates.

*Source: IMF staff assessment (content unit: _cr10317 - 19. Supervisory approach No formal methodology but CBSM shows good understanding of the risks facing the banks).*

### 99.      The importance of off-balance sheet items was tested. Off-balance sheet items

### The importance of off-balance sheet items was tested.

### Off-balance sheet items: role and testing method
- Off-balance sheet items include guarantees and loan commitments.
- Guarantees can be invoked when a borrower defaults, resulting in a need to add provisioning.
- Commitments can be drawn suddenly and then defaulted on; borrowers in trouble are likely to draw on available commitments before difficulties become known.
- Tests applied the common practice of applying a 50 percent weight to off-balance sheet items. Thus: a test in which 10 percent of all loans were written off would also include a write-off of 5 percent of off-balance sheet items.

### Key balance-sheet and off-balance-sheet figures (as of June 30, 2009)
- Consolidated balance sheet of banking sector (in euro millions, Total / Domestic / Foreign):
  - TOTAL ASSETS: 11,498 / 6,913 / 4,585
  - Loans to customers: 5,433 / 3,880 / 1,553
  - Bond portfolio and other debt securities: 3,920 / 1,833 / 2,087
  - Due to customers: 3,903 / 2,116 / 1,787
  - Debt Securities (total): 5,496 / 3,335 / 2,161
  - TOTAL CAPITAL: 1,126 / 787 / 338
- Consolidated off-balance-sheet activity (in euro millions, Total / Domestic / Foreign):
  - Guarantees Given: 560 / 449 / 111
  - Commitments (total): 1,856 / 400 / 1,456
    - a) sales and repurchase agreements: 1,173 / 191 / 982
    - b) foreign exchange and securities receivable: 252 / 50 / 203
    - c) foreign exchange and securities to be delivered: 212 / 55 / 157
    - d) other commitments: 219 / 105 / 115
  - Assets under management: 585 / 198 / 387
  - Custody and administration of securities (total): 13,854 / 8,157 / 5,697

### Financial soundness indicators and provisioning (2004–2009)
- Regulatory capital to risk-weighted assets (percent): 22.8 (2004), 23.1 (2005), 18.9 (2006), 17.5 (2007), 16.9 (2008), 11.0 (2009) 1/
- Nonperforming loans to total loans (percent): 1.0 (2004), 2.2 (2005), 1.9 (2006), 2.1 (2007), 2.4 (2008), 2.4 (2009)
- Provisioning to total loans (percent): 5.0 (2004), 4.4 (2005), 4.5 (2006), 4.7 (2007), 2.7 (2008), 2.8 (2009)
- Provisioning to total NPLs (percent): 499.6 (2004), 205.5 (2005), 240.2 (2006), 226.7 (2007), 113.8 (2008), 113.7 (2009)
- Return On Assets (ROA, percent): 0.8 (2004), 0.2 (2005), 0.9 (2006), 1.2 (2007), 0.8 (2008), 0.3 (2009)
- Return On Equity (ROE) after extraordinary items and taxes (percent): 5.1 (2004), 4.1 (2005), 7.9 (2006), 12.1 (2007), 10.0 (2008), 2.9 (2009)
- Interest margin to gross income (percent): 48.2 (2004), 47.8 (2005), 46.9 (2006), 43.9 (2007), 43.5 (2008), 44.3 (2009)
- Liquid assets to total assets (percent): 53.5 (2004), 51.0 (2005), 42.5 (2006), 41.9 (2007), 42.0 (2008), 41.3 (2009)
- Liquid assets to short-term liabilities (percent): 78.9 (2004), 90.4 (2005), 90.3 (2006), 96.3 (2007), 103.5 (2008), 97.9 (2009)
- 1/ As of June. Official data indicate the average risk-weighted CAR of the system was 15.4 percent as of end-June 2009. Adjustments by the FSAP team bring that figure down to 11.0 percent based on independent assessments addressing the value of banks’ holdings of untraded equity.

### Stress-test findings and scenarios (summary)
- Off-balance-sheet items were included in solvency tests using a 50 percent weight.
- Appendix Table 8 (summary of stress test results) reports multiple scenarios; selected outcomes (percent of assets in system / CAR% change / banks forced to liquidate) include:
  - Current state of the banking sector: 32 0 44.8 38.2 0.0 44.8 38.2 0.0 11.0
  - Loss of all good loans + 3x NPLs:
    - 6 percent scenario: 86 3 89.1 51.1 11.7 69.9 51.1 11.7 4.8
    - 7 percent scenario: 86 4 89.1 51.1 46.5 69.9 51.1 46.5 3.6
  - Loss of largest loan for each bank:
    - 23 percent scenario: 54 3 65.3 46.5 39.9 65.3 46.5 39.9 5.7
    - 42 percent scenario: 75 5 69.9 65.3 65.3 69.9 65.3 65.3 0.8
  - Reduction in net interest income (various shocks) produce outcomes such as:
    - 56 percent scenario: 63 0 68.2 44.8 0.0 49.1 44.8 0.0 9.1 -25.4 -26.9
    - Discount of 5 percent on bank loans, 5 percent on securities, 25 percent on customer loans:
      - 17 percent scenario: 43 0 46.5 44.8 0.0 46.5 44.8 0.0 9.9 -4.1 -4.21
      - 29 percent scenario: 54 1 65.6 46.5 34.8 46.5 46.5 34.8 7.3 -11.3 -11.63
    - Discount of 5 percent on bank loans, 10 percent on securities, and 25 percent on customer loans:
      - 17 percent scenario: 43 0 46.5 44.8 0.0 46.5 44.8 0.0 9.3 -4.4 -4.61
      - 27 percent scenario: 54 1 65.6 46.5 34.8 46.5 46.5 34.8 6.6 -10.8 -11.23
      - 49 percent scenario: 86 4 89.1 68.2 46.5 69.9 49.1 46.5 -0.8 -25.9 -27.27
    - Discount of 5 percent on bank loans, 10 percent on securities, and 75 percent on customer loans:
      - 15 percent scenario: 42 1 46.5 38.2 34.8 46.5 38.2 34.8 7.8 -4.5 -3.31
- Interpretation: stress tests identify scenarios under which a nontrivial fraction of banks (measured by assets) would see CARs fall below regulatory thresholds, and some scenarios imply substantial negative impacts on profitability and capital.

### Complementary liquidity analysis — Box 2 (variation on liquidity stress tests)
- Scenario design: deposit outflows with CRSM deposits assumed least stable (highest outflow rate), followed by foreign (non-CRSM) deposits, then domestic (non-CRSM) deposits.
- Liquidity usage order assumed: cash in vault and funds due from banks on demand → securities used for trading → less-liquid securities held to maturity → liquidation of loan portfolios when other assets exhausted.
- The cumulative net cash balance equals banking system assets usable to meet deposit outflows (everything other than customer loans). The point this balance becomes negative is the threshold forcing loan liquidation.
- Tests suggest the system on aggregate is resilient to moderate outflows even if CRSM’s Delta-related securities are not liquid; however, a bank-by-bank analysis indicates illiquid banks would need to borrow from liquid banks in some scenarios.
- Cumulative Net Cash Balance after 30 business days (In euro millions) — Scenarios assuming Delta assets are immobilized (labelled “a”):
  - Scenario 1a (Daily Deposit Outflow Rate percent): 0.25 / 0.5 / 12,733 / 1,096 / 1,638
  - Scenario 2a: 0.5 / 0.75 / 1,252 / 04697 / 1,348
  - Scenario 3a: 0.75 / 1 / 1,358 / 299 / 1,059
  - Scenario 4a: 1 / 1.25 / 1.75 / 670 / -997 / 69
  - Scenario 5a: 1.25 / 1.5 / 2 / -18 / -497 / 479
- Cumulative Net Cash Balance after 30 business days (In euro millions) — Scenarios assuming Delta assets are recoverable at 75 percent (labelled “b”):
  - Scenario 1b: 0.25 / 0.5 / 11,743 / 105 / 1,638
  - Scenario 2b: 0.5 / 0.75 / 1,055 / -293 / 1,348
  - Scenario 3b: 0.75 / 1 / 367 / -691 / 1,059
  - Scenario 4b: 1 / 1.25 / 1.75 / -321 / -1,090 / 769
  - Scenario 5b: 1.25 / 1.5 / 2 / -1,009 / -1,488 / 479
- Box footnote: Preliminary data from CBSM after the FSAP mission indicate about € 2.3 billion of outflows had occurred as of December 15, 2009 with an additional € 220 million still to be repatriated before end-June 2010. The overall financial system has been resilient so far, in part due to the introduction of reserve requirements by the CBSM. The stress tests suggest that the banking system could withstand an additional 20 to 25 percent of the outflows that had been recorded to that point.

### Policy-relevant implications (drawn from the tests and indicators)
- Off-balance-sheet exposure matters materially for solvency and should be included in stress-test scenarios (the 50 percent weight is a standard practice reflected in the tests).
- Adjusted CAR estimates that account for untraded equity holdings can be materially lower than official figures (official end-June 2009 CAR: 15.4 percent; FSAP-adjusted: 11.0 percent).
- Provisioning coverage of NPLs declined from very high levels in 2004 to lower coverage by 2008–2009 (Provisioning to total NPLs: 113.8 and 113.7 in 2008–2009), indicating reduced buffers relative to earlier years.
- Liquidity stress tests indicate system-wide resilience to moderate deposit outflows, but concentrated or larger outflows could force loan liquidations and interbank borrowing; maintaining liquid buffers and contingency liquidity plans is important.
- Bank-by-bank heterogeneity means supervisory monitoring should focus on individual institutions’ liquidity and asset liquidity, not only aggregate system metrics.

*Source: IMF staff compilation from CBSM data and FSAP team analysis contained in the statistical appendix.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr10317.pdf_