IMF Survey : IMF Broadens Financial Surveillance

IMF News, January 13, 2014

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The IMF revamped its methodology for determining which countries undergo mandatory financial sector assessments.
Four new countries added to mandatory reviews: Poland, Denmark, Finland, and Norway.
Total number of countries required to undergo mandatory financial sector assessments: 29.
In September 2010 the IMF’s Executive Board agreed the world’s top 25 financial sectors would undergo a mandatory financial check-up every five years; to date, 24 out of the 25 countries or jurisdictions have undergone or will soon undergo their assessments.
The Board reviewed the methodology to place more emphasis on:
- connections between financial sectors and institutions;
- cross-border linkages covering banking, equity, and debt exposures;
- capturing the potential for pure price contagion.

Rationale: “The experience of the global financial crisis and the government debt crisis in Europe has shown that events in relatively small countries that are highly connected to others can have significant spillovers,” said Dimitri Demekas, assistant director in the IMF’s Monetary and Capital Markets Department.
Emphasis on:
- how problems in one country can affect others (spillovers);
- network models to understand impacts across financial institutions, markets, and countries;
- cross-border supervisory cooperation arrangements, especially where foreign-owned banks are systemically important.

Since 1999 the IMF has monitored countries’ financial sectors on a voluntary basis through the Financial Sector Assessment Program.
In developing and emerging market countries, the World Bank participates, focusing on long-term financial development issues.
The IMF examines three key components in all countries:
- the soundness of banks and other financial institutions, including stress tests;
- the quality of financial market oversight in banking and, if appropriate, insurance and securities;
- the ability of supervisors, policymakers, and financial safety nets to respond effectively in case of a crisis.
The IMF tailors assessments to a country’s individual circumstances and potential sources of vulnerability.
Objective: assess countries’ crisis prevention and management frameworks with the goal of supporting both national and global financial stability.

In 2014 the IMF’s experts plan to evaluate 13 countries’ financial health (mandatory and voluntary assessments).
Countries the IMF plans to assess in 2014:
- Suriname
- Denmark
- United Arab Emirates
- Guatemala
- Georgia
- Ukraine
- South Africa
- Bosnia
- Morocco
- Jamaica
- Kazakhstan
- Maldives
- Azerbaijan
Of the four new mandatory additions:
- Finland had a financial review in 2010;
- Poland had a financial review in 2013;
- Denmark’s review will take place in 2014;
- IMF experts plan to visit Norway in 2015.

The IMF produces a detailed report for each assessment that includes recommendations on how to strengthen financial stability.
Each report contains a table with key recommendations, rated according to priority and time-frame for implementation.
The IMF follows up and monitors countries’ implementation; countries are free to implement recommendations or not.

Source: IMF Survey : IMF Broadens Financial Surveillance (page overview).