West African Economic and Monetary Union: Financial Sector Assessment Program-Technical Note on Systemic Risks and Macroprudential Policy Framework
IMF Staff Country Reports, September 23, 2022
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Bibliographic details
- Published: September 23, 2022
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9798400220937.002
Key findings
- Since the 2008 Financial Sector Assessment Program (FSAP), the WAEMU financial sector has undergone major changes that have altered its risk profile.
- Three structural changes have played a key role since the 2008 FSAP:
- (i) the financial sector has grown significantly;
- (ii) regional banking groups have become dominant;
- (iii) the high concentration of bank portfolios in sovereign exposures, which accounted for an average of 31 percent of banking assets at end-2020, are almost triple the level observed in 2004.
- These structural changes have altered the structure of systemic risks and vulnerabilities in the WAEMU banking system.
Systemic vulnerabilities and risk drivers
- Predominant sovereign exposures in bank portfolios increase balance-sheet sensitivity to sovereign risk shocks.
- Dominance of regional banking groups changes contagion channels and amplifies cross-border transmission of shocks.
- Rapid financial sector growth expands the absolute size of potential systemic losses and heightens the need for effective macroprudential surveillance.
Policy implications and recommended priorities
- There is a raised need for implementing reforms to strengthen the effectiveness of the macroprudential policy framework.
- Reforms are also needed to strengthen banking supervision frameworks to address the changed structure of systemic risks and vulnerabilities.
- Relevant policy tools and metrics noted in the assessment include Basel-type liquidity ratios and a verifiable liquidity indicator.
Subjects and keywords appearing in the assessment
- Subjects: Commercial banks, Financial institutions, Financial sector policy and analysis, Financial sector risk, Financial sector stability, International organization, Macroprudential policy, Monetary policy, Systemic risk
- Keywords: bank assets, bank portfolio, Basel-type liquidity ratios, Commercial banks, contagion risk, Europe, Financial sector risk, Financial sector stability, Global, IMF-World Bank Financial Sector Assessment Program, Macroprudential policy, North Africa, risk profile, Sub-Saharan Africa, Systemic risk, verifiable liquidity indicator, WAEMU bank holding, West Africa
West African Economic and Monetary Union: Financial Sector Assessment Program-Technical Note on Systemic Risks and Macroprudential Policy Framework — September 23, 2022.
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