IMF Executive Board Concludes Periodic Review of the Financial Sector Assessment Program
IMF News, May 27, 2021
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- Published: May 27, 2021
Review scope and context
- The Executive Board completed a periodic review of the Financial Sector Assessment Program (FSAP) on May 12.
- The review examined the Fund’s role and responsibilities in the FSAP as the global financial stability landscape has continued to evolve.
- The pandemic highlighted:
- the importance of assessing financial stability risks from vulnerabilities in the nonfinancial sectors,
- possibly long-lasting scarring effects,
- digitalization.
- Climate change was identified as having important implications for the financial sector.
- The review assessed how the FSAP has adapted to the transformation of financial systems and emerging new risks, and provided proposals to:
- enhance the value of the FSAP for national authorities,
- further strengthen its contribution to Fund financial surveillance.
- The review was based on background staff analyses and surveys of country authorities and Executive Directors.
FSAP role, coverage, and recent activity
- The FSAP provides in-depth assessments of financial sectors and important input to Fund surveillance.
- Joint vs. single-agency assessments:
- Assessments are usually conducted jointly with the World Bank in emerging market and developing economies.
- Assessments are conducted by the Fund alone in advanced economies.
- Historical and recent activity:
- Since the program’s inception in 1999, 157 Fund members have undergone individual or regional FSAPs.
- Since 2013, the list of jurisdictions with Systemically Important Financial Sectors has been set at 29—so-called S29.
- A landmark change in 2010 mandated that jurisdictions with Systemically Important Financial Sectors (SIFS) participate in financial stability assessments as a part of Fund surveillance.
- In recent years, the Fund has been conducting 12–14 FSAPs per year.
- More than half of recent FSAPs has been voluntary assessments and for emerging market and developing economies.
Executive Board assessment — findings
- General endorsement:
- Executive Directors welcomed the FSAP Review and its background papers.
- They noted the FSAP has made an important contribution to Fund surveillance and capacity development.
- Risks and evolving challenges:
- Potential strains facing financial systems in the wake of the COVID-19 pandemic.
- Significance of risks from the nonfinancial sector and vulnerabilities in nonbank financial institutions (NBFIs) and financial market infrastructures.
- New opportunities and challenges from climate change and digitalization.
- Three-pillar approach:
- Directors emphasized that the three-pillar approach—focusing on risk analysis, oversight, and safety nets—has worked well.
- The risk-focused approach to scoping Financial Stability Assessments (FSA) has provided flexibility to address relevant risks while helping to prioritize and contain the program’s resource footprint.
- Scoping and flexibility:
- Going forward, greater use could be made of the flexibility within the framework when scoping issues for FSAPs, balancing current coverage with emerging risks and issues, with continued tailoring of FSAPs to country specifics, effective prioritization, and in close consultation with the country authorities.
- The risk-based approach would help decide whether to conduct a full standard assessment versus a focused review and leverage the findings of recent standards assessment to tailor the scope of FSAs.
- Benchmarks and standards:
- Directors endorsed the Key Attributes of Effective Resolution Regimes as the assessment benchmark for insurance resolution frameworks in FSAPs and stand-alone assessments.
- Toolkit and analysis:
- Directors welcomed efforts to further enrich the FSAP’s risk analysis toolkit.
- Emphasized importance of strengthening tools to assess:
- interactions between solvency, liquidity, and contagion risks,
- vulnerabilities among NBFIs,
- risks in nonfinancial sectors,
- interconnectedness,
- macrofinancial interactions,
- the macroprudential policy stance,
- new risks.
- Stressed continued efforts to increase the efficiency, dissemination, and ease of use of the FSAP toolkit and to ease data constraints.
- Highlighted need to strengthen the toolkit to enhance the assessment of financial vulnerabilities in low and lower-middle income countries.
- Traction and implementation:
- While most FSAP recommendations were implemented, challenges arose when members faced political economy constraints or where there may have been differences in technical views.
- Directors welcomed the introduction of the authorities' views in FSSAs.
- Directors welcomed efforts to leverage the FSAP to develop risk analysis tools for use in bilateral surveillance and looked forward to further progress.
- Emphasized the importance of closer integration of the Article IV consultation process with the FSAP.
- SIFS list and costs:
- Directors welcomed the update and expansion of the list of jurisdictions with Systemically Important Financial Sectors (SIFS) that are subject to periodic mandatory FSAs.
- A few Directors recalled that Fund policy requires the periodic review of the list and assessment frequency.
- They recognized that the cost of the FSAP had been broadly stable over time.
- Going forward, the slight cost increase from expanding the list of mandatory FSAs while maintaining space for voluntary FSAs could be accommodated within the current resource envelope.
- Supra-national authorities:
- Directors clarified the framework for expected periodic FSAs with supra-national authorities:
- A periodic FSA with a supra-national authority would be conducted if at least one member with a SIFS has delegated financial sector policies to the supra-national authority.
- The individual member country FSAs would be scoped to leverage the planned work on the supra-national FSA to avoid duplication.
Policy implications and recommendations
- Use risk-based scoping to prioritize FSAP resources and tailor assessments to country specifics.
- Increase utilization and integration of FSAP risk analysis tools into bilateral surveillance, including Article IV consultations.
- Strengthen toolkit capabilities to assess interactions among solvency, liquidity, contagion, NBFI vulnerabilities, nonfinancial sector risks, interconnectedness, macrofinancial interactions, and macroprudential policy stance.
- Enhance toolkit dissemination, ease of use, and address data constraints—especially for low and lower-middle income countries.
- Apply the Key Attributes of Effective Resolution Regimes as the benchmark for insurance resolution frameworks in FSAPs.
- Incorporate authorities' views in Financial Sector Stability Assessments (FSSAs) to improve traction and implementation.
- Continue periodic review of the SIFS list and assessment frequency, and accommodate modest cost increases within the current resource envelope.
Key statistics and dates
- FSAP inception: 1999
- Total Fund members that have undergone individual or regional FSAPs: 157
- SIFS list set at: 29 (S29) since 2013
- Notable institutional change mandated: 2010 (jurisdictions with SIFS participate in financial stability assessments as part of Fund surveillance)
- Recent FSAPs per year: 12–14
- Prior reviews referenced: 2014 review; 2019 Independent Evaluation Office evaluation
- Executive Board completion date of this review: May 12
- Press release date: May 27, 2021
- Press Release No.: 21/143
Source: IMF Press Release No. 21/143 (May 27, 2021).
