The Financial Sector Assessment Program (FSAP)

October 6, 2016

The global financial crisis showed that the health and functioning of a country’s financial sector has far-reaching implications for its economy as well as for other economies. The Financial Sector Assessment Program (FSAP), established in 1999, is a comprehensive and in-depth analysis of a country’s financial sector. FSAP assessments are the joint responsibility of the IMF and World Bank in developing economies and emerging markets and of the IMF alone in advanced economies. The FSAP includes two major components: a financial stability assessment, which is the responsibility of the IMF, and a financial development assessment, the responsibility of the World Bank. To date, more than three-quarters of the member countries have undergone assessments.

Assess financial stability and development

The goal of FSAP assessments is twofold: to gauge the stability and soundness of the financial sector, and to assess its potential contribution to growth and development. 

  • To assess the stability of the financial sector, FSAP teams examine the resilience of the banking and other non bank financial sectors; conduct stress tests and analyze systemic risks including linkages among banks and nonbanks and domestic and cross border spillovers; examine microprudential and macroprudential frameworks; review the quality of bank and non bank supervision, and financial market infrastructure oversight against accepted international standards; and evaluate the ability of central banks, regulators and supervisors, policymakers, and backstops and financial safety nets to respond effectively in case of systemic stress. While FSAPs do not evaluate the health of individual financial institutions and cannot predict or prevent financial crises, they identify the main vulnerabilities that could trigger one. 
  • To assess the development aspects of the financial sector, FSAPs examine the development needs in terms of institutions, markets, infrastructure, and inclusiveness; quality of the legal framework and of payments and settlements system; identify obstacles to the competitiveness and efficiency of the sector; topics relating to financial inclusion and retail payments; and examine its contribution to economic growth and development. Issues related to development of domestic capital markets are particularly important in developing and low-income countries. While focusing on development issues, FSAPs also keep in view financial stability dimensions . 

FSAP continues to adapt to the post-crisis era

The FSAP underwent the most significant changes since its inception in 2009, largely in response to the global financial crisis. These changes included a clear definition of the components of stability assessments (vulnerabilities and resilience of the financial system, regulatory and supervisory framework, and financial safety nets), the introduction of Risk Assessment Matrices (RAMs), and the possibility of modular FSAPs conducted separately by the IMF or the World Bank, focusing on each institution’s chief responsibility. 

The 2014 FSAP Review found that FSAPs conducted since 2009 have improved in all dimensions and featured stress tests that covered a broader set of risks, and, increasingly, analyze spillovers and macroprudential frameworks. The introduction of RAMs has led to a more coherent discussion of risks and their likely impact. FSAPs are highly regarded by national authorities and countries have implemented a high share of the recommendations. In addition, the rate of publication of Financial System Stability Assessment reports (FSSAs) is also very high.

Integration of FSAP into IMF surveillance 

FSAP findings provide valuable input to the IMF’s broader surveillance of countries’ economies, known as Article IV consultations. The global financial crisis demonstrated the need for an even more seamless integration of these two strands of the IMF’s work. 

Important steps were taken in the context of the broader debate on modernizing the IMF’s surveillance and, during the 2014 FSAP Review. In September 2010, the IMF made it mandatory for 25 jurisdictions with systemically important financial sectors to undergo financial stability assessments under the FSAP every five years. The list of jurisdictions for these mandatory assessments was based on the size and interconnectedness of their financial sectors. In December 2013, IMF’s Executive Board revised the methodology for determining jurisdictions with systemically important financial sectors. The new methodology places greater emphasis on interconnectedness and its application led to an increase in the number of systemically important jurisdictions from 25 to 29 (S29). In addition, the 2014 FSAP Review discussed actions to be undertaken in FSAPs in order to further facilitate the integration of its findings and recommendations in Article IV surveillance, particularly the use of a macrofinancial filter to select among the FSAP’s extensive set of micro- and macroprudential findings and recommendations those to be reported in FSSAs.

While the decision to make stability assessments under the FSAP mandatory aims at better safeguarding global financial stability, it also poses a challenge in terms of resource intensity and technical rigor. Also, a balance has to be maintained with FSAPs for non-systemic countries--particularly low-income countries-- in the context of a broadly unchanged resource envelope. At present, several steps are underway to strengthen the focus and coverage of the FSAPs, to make innovative use of financial stability technical assistance spanning the various areas related to financial stability, and to ensure that the FSAPs provide accurate and timely support to financial sector surveillance in Article IV consultations.

A list of upcoming FSAPs is published on