## IMF Executive Board Concludes 2020 Financial System Stability Assessment with Norway

_IMF News, August 12, 2020_

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## Bibliographic details
- Published: August 12, 2020

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### Overview
- Press Release No. 20/280
- Date: August 12, 2020
- The Executive Board of the International Monetary Fund (IMF) concluded the Financial System Stability Assessment with Norway on July 22, 2020 without a meeting.
- Much of the work of the Financial Sector Assessment Program (FSAP) was conducted prior to the COVID-19 pandemic, with the missions concluding on February 13, 2020.
- The report was updated to reflect key developments and policy changes since the mission work was completed and includes a risk analysis that quantifies the possible impact of the COVID-19 crisis on bank solvency.

### Major findings on financial sector developments since 2015
- Norwegian authorities have taken steps to strengthen the financial system since the previous FSAP in 2015:
  - Regulatory capital requirements for banks were raised.
  - Actions were taken to bolster the weak capital position of insurers.
  - Temporary borrower-based measures for residential mortgages were introduced and "seem to have had some moderating impact on segments of the housing market."
  - The resolution framework was strengthened with the implementation of the Bank Recovery and Resolution Directive (BRRD) and the designation of Finanstilsynet (FSA) as the resolution authority.

### Stress test results and risk analysis
- Solvency stress tests:
  - Indicate that while the COVID-19 shock is expected to have a significant impact on capital ratios, "all banks in the test would continue to meet conservative hurdle rates of around 10 percent."
- Liquidity stress tests:
  - Suggest short-term resilience, but potential for tensions over longer horizons.
- Climate-related transition risk:
  - A novel assessment suggests that sharp increases in carbon prices would have a significant but manageable impact on banks’ loan losses.
- Uncertainty:
  - Given the unprecedented nature of the pandemic, the findings are subject to uncertainty and downside risks.

### Authorities’ response to COVID-19
- Norwegian authorities eased macroprudential policies and took measures to support bank liquidity in response to the COVID-19 crisis, which has helped mitigate its impact.

### Institutional strengths and areas for improvement
- Strengths:
  - Financial sector oversight is well-developed.
  - Norway’s cybersecurity risk mitigation framework is advanced.
- Areas for improvement and recommendations:
  - Strengthen the macroprudential policy framework by defining a policy strategy and further improving interagency coordination.
  - Increase the operational independence of the supervisory authority.
  - Strengthen the risk focus of supervisory activities, including greater scrutiny of smaller banks and foreign branches.
  - Guard against a weakening of capital requirements arising from the implementation of European regulatory framework.
  - Strengthen the oversight of banks’ liquidity and funding risks and close data gaps.
  - Address remaining weaknesses in the effectiveness of AML/CFT supervision.
  - Intensify cybersecurity risk oversight of payment systems.

*IMF Communications Department, Press Release No. 20/280, August 12, 2020.*

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## References

- [https://www.imf.org/-/media/images/imf/bios/imfboard.jpg](https://www.imf.org/-/media/images/imf/bios/imfboard.jpg)
- [The Executive Board](https://www.imf.org/external/np/sec/memdir/eds.aspx)
- [Norway and the IMF](http://www.imf.org/external/country/NOR/index.htm)
- [Press Releases](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2020/08/11/pr20281-norway-imf-executive-board-concludes-2020-financial-system-stability-assessment_