Category Financial Sector Assessment

Selected Organizational Issues

The FSAP Procedures Guide covers both assessments and updates. In addition, assessments (countries and economies that have not yet participated in the program) and reassessments (when the passage of time or the pace of the reform process in a country indicates that comprehensive updating of the initial FSAP assessment is desirable) are complemented by focused updates (including updating of stability and standards and codes assessments)...

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Summary of FSAP Experience25

Stress tests have been performed for every country participating in the FSAP. The tests are designed to provide a quantitative measure of the vulnerability of the financial system to different shocks and to complement the insights gathered from other components of the assessment. This analysis includes elements of the legal, institutional, regulatory, and supervisory framework; observance of key financial sector standards and codes; analysis of the financial system structure and key vulnerabilities; and empirical analysis of financial soundness indicators.

Data availability is a key factor in determining the approach and sophistication of stress tests performed as part of the FSAP...

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Issues of Funding

As populations mature, the relative size of pension liabilities and the related invest­ment risks have grown accordingly and have, in many instances, exceeded expectations. Consequently, greater attention is being called to managing and maintaining funding levels and to meeting payment obligations, which is reflected in greater emphasis on regulatory and supervisory structures.

H.2.3 Fiscal Management

If one considers the risks of politically motivated misallocation of funds and the fiscal implications of mismanagement, regulatory and supervisory attention must be given to publicly managed funds (see section H.3 below).

H.2.4 Financial Markets

The focus on ensuring the soundness of pension sectors also attests to their growing role in, and influence on, global financial markets...

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Asia Regional Information Center

The Asia Regional Information Center (ARIC Database) includes capital adequacy and nonperforming loan indicators for the financial sector plus the debt-to-equity and return on equity indicators for the corporate sector. The database covers the following:

• Years covered: 1997 onward, frequency—monthly, quarterly, annual, varies by indicator and country

• Countries covered: Bangladesh, Brunei Darussalam, India, Indonesia, Malaysia, Pakistan, Philippines, the Republic of Korea, Singapore, Sri Lanka, Thailand

C.3.5 IMF

IMF produces the following databases of particular interest for financial sector assessments: international financial statistics (IFS) and bonds, equities, and loans database (BEL).

Produced by the IMF, the IFS provides international statistics on macroeconomic indicators...

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World Bank-IMF staff members have carried out a broad consultative process to prepare a draft report on the bank insolvency framework. A number of global and regional semi­nars, with participation of more than 90 countries, have been held as part of the GBII in
the past three years to ensure a wide consultation process, including countries from all regions of the world, as well as representatives for the regulatory and legal professions. A joint World Bank-IMF drafting team prepared successive versions of a report on bank insolvency in consultation with a Core Consultative Group (CCG)...

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The Calibration of Shocks

Another key question to address in implementing a system-focused stress test is how big are the shocks? Stress testing involves discovering the effect of exceptional but plausible events; therefore, the scenarios considered should be beyond the normal range of experi­ence. Scenarios can be based on historical data (e. g., using the largest observed changes or extreme values over a specified period), or they can be hypothetical and may involve large movements thought to be plausible. Historical scenarios can be more intuitive because they were actually observed, but hypothetical scenarios may be more realistic, especially if the financial structure has changed significantly (e. g., with deregulation, liberalization, or changes in monetary policy operating procedures)...

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