Category Financial Sector Assessment

The Mapping of Macroscenarios to Balance Sheets: The Bottom-Up Approach

Translating a macroeconomic framework into the balance sheet of a financial institution requires mapping macrovariables into a set of common risk factors that can be applied to stress individual balance sheets. Applying a stress to an individual balance sheet under the bottom-up approach involves shocking the risk factors that determine the underly­ing value of a portfolio and then revaluing that portfolio. Because most portfolios have numerous instruments, each with a unique price, the process of revaluing a portfolio may require knowledge of hundreds or thousands of market prices. Financial institutions typically simplify this process by mapping each element of a portfolio into a smaller set of common risk factors...

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Maintenance of Competitive Conditions

Bank restructuring should not distort competition, subsidize failure, or penalize the more efficient banks in the system. This principle may be contained in competition law and enforced by the relevant authorities, though often in cooperation with the banking authorities.

G.5.3.6 Accountability and Transparency of Process

Bank restructuring should be carried out in a framework of fairness and transparency. Autonomous banking authorities should be held accountable for their actions. In par­ticular, information should be made public about the rationale for important decisions, such as those involving the use and allocation of public funds, government assumption of control and ownership of a weak bank on systemic stability grounds (see section G.5...

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Multitasking for the Sectoral Reviews

Having separate experts for sectoral stability and development analysis will overburden the country and impose excessive administrative costs. It will also result in a team that is too large to allow for adequate synthesis of what are indeed overlapping issues. Therefore, there seems little merit in including a large team of “development specialists” alongside prudential specialists. In the case of many sectors, such as insurance and capital markets, the same expert who analyzes stability aspects should also be able to assess developmental aspects. This arrangement will not only avoid duplication but also guarantee consistency across the two dimensions. Staffing the assessment of the sectors should be designed with this multitasking in mind.

In the case of banking, always the most impo...

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Institutional Structure of Financial Regulation and Supervision1

Overview

Around the world, many countries are reconsidering the institutional structure of regula­tory and supervisory agencies in the financial sector. This reconsideration reflects the concern that the existing structures—which were often established in a markedly dif­ferent market and institutional environment than exists today—may have become inappropriate to meet the key regulatory objectives effectively. These objectives include fostering market efficiency and promoting market confidence and stability. As countries reassess and then implement changes in their regulatory and supervisory architecture, a number of issues are raised in relation to both the developmental and stability aspects of the financial sector’s evolution.

From the developmental perspective, the main questio...

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Regulation and Supervision of Private Funds

Private pension plans are schemes administered by an employer, a pension entity, or a pri­vate sector provider. They may either complement or substitute for social security systems and may include plans for public sector workers (Yermo 2002, p. 3). The regulation and supervision of privately run pension funds is equally as important as that of public plans and increasingly so as more countries move toward a mix of public and privately run plans. In addition, governments have moved toward contracting out the investment arm of their pension programs to private fund management companies.

Privately managed or independent funds rely heavily on professional asset manage­ment...

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Commercial Databases Providing Aggregate Financial Sector Data

The CEIC Data Company Ltd. produces the CEIC Asia Database. This database provides, in addition to economic data, aggregate balance sheets by banking groups (e. g., all banks, commercial banks, and, in some cases, foreign banks and state-owned banks). For some countries, a limited number of FSIs are available, mainly bank lending and asset quality indicators. However, for some countries, available are bank capital adequacy indicators and, in some cases, a limited number of structural and insurance indicators (e. g., number of banks, some insurance data). For some countries, individual bank balance sheets are provided. In addition, the database has information on financial markets (e. g., stock mar­ket capitalization, indices, turnover ratios) and, for some countries, on real estate prices...

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