Press Release: IMF Executive Board Reviews Mandatory Financial Stability Assessments Under the Financial Sector Assessment Program
IMF News, January 13, 2014
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- Published: January 13, 2014
Background and timeline
- December 6, 2013: Executive Board reviewed experience with implementation of the decision adopted in 2010 to integrate financial stability assessments under the Financial Sector Assessment Program (FSAP) into Article IV Surveillance on a mandatory basis for member countries with systemically important financial sectors.
- September 2010: Executive Board made stability assessments under the FSAP a mandatory part of bilateral surveillance under Article IV for 25 jurisdictions with systemically important financial sectors.
- July 2012: Integrated Surveillance Decision (ISD) adopted; legal framework updated to reflect the ISD.
- January 13, 2014: Press Release issued by IMF Communications Department.
Key changes to methodology for determining systemic importance
- New methodology features:
- Places greater emphasis on interconnectedness.
- Expands the range of covered exposures.
- Takes into consideration the potential for price contagion across financial sectors.
- Uses the most recent available data.
- Adheres to principles of relevance, transparency, and even-handedness established by the 2010 Executive Board decision.
- Outcomes:
- Four additional jurisdictions added to the list of systemically important financial sectors: Denmark, Norway, Poland, and Finland.
- Systemic importance recognized as a dynamic concept; both the list of jurisdictions and the methodology will continue to be reviewed periodically.
Legal framework and scope of mandatory assessments
- Legal update:
- Executive Board updated the legal framework governing mandatory financial stability assessments to reflect the Integrated Surveillance Decision adopted in July 2012.
- Update allows a more comprehensive analysis of spillovers arising from members’ financial sector policies.
- Scope under the ISD-consistent approach:
- Mandatory financial stability assessments cover spillovers from a member’s financial sector policies when those policies undermine either the member’s own stability or may significantly influence the effective operation of the international monetary system (for example by undermining global economic and financial stability).
Executive Board assessment and Directors’ views
- Implementation and impact:
- Directors highlighted success in implementing the 2010 Decision, with mandatory financial stability assessments already completed or underway for almost all jurisdictions identified pursuant to the 2010 Decision.
- Use of a more risk-based approach enabled the Fund to allocate FSAP resources more effectively and helped strengthen integration of FSAPs and Article IV consultations.
- Views on methodology revisions:
- Directors endorsed modifying the methodology to incorporate lessons from the crisis, particularly interconnectedness.
- Systemic importance should be determined not only by size and cross-border banking linkages but also by other potential transmission channels for shocks.
- New methodology regarded by many Directors as a substantial improvement: shifts emphasis to interconnectedness, expands covered exposures, and considers complexity and potential for price contagion while remaining rules-based, data-driven, and transparent.
- Some Directors considered the new methodology somewhat complex and less transparent than the previous one.
- Some Directors concerned it omits certain countries that experienced banking and financial crises during the post-2008 period.
- Some Directors suggested the methodology should leave room for judgment to assess potential risk from jurisdictions not subject to mandatory FSAPs; a few Directors suggested vulnerability could be captured in the methodology.
- Data and analytical improvements:
- Directors noted the need for periodic review of the list and methodology as financial sectors, markets, analytical methods, and data sources evolve, including for nonbank, central counterparty clearing houses, hedge funds, and unregulated segments of the financial sector.
- Continued efforts to improve reporting and quality of data will be important.
Numbers and listings highlighted by Directors
- Jurisdictions:
- 25 jurisdictions: initial list in September 2010 for mandatory FSAPs under Article IV.
- 29 jurisdictions: number of jurisdictions noted by Directors whose financial sectors have been determined by the Managing Director to be systemically important.
- Four additional jurisdictions added under the new methodology: Denmark, Norway, Poland, and Finland.
- Reviews and milestones:
- FSAP review scheduled in 2014 to consider resource and methodological issues.
Resource implications and recommendations
- Resource impact:
- Directors considered the incremental resource impact on the FSAP program of the increase in the number of jurisdictions with systemically important financial sectors to be modest and manageable.
- Concerns and suggestions:
- Most Directors expressed concern that the shift toward a more risk-based approach has reduced availability of voluntary FSAPs in jurisdictions with non-systemic financial sectors.
- Emphasized need to make sufficient resources available to ensure continued delivery of non-mandatory FSAPs.
- Suggestions included better prioritization of workload, reallocation of resources, or higher budgetary allocation.
- A few Directors suggested promoting self-assessments, backed by quality checks by the Fund.
- Directors looked forward to budget framework discussions and the FSAP review in 2014 to further consider these and other issues.
Press Release No. 14/08, January 13, 2014.