Category Financial Sector Assessment

OECD Databases

The OECD Bank Profitability Statistics Database has three main components: (a) income statement and balance sheet statistics, (b) structure of financial system, and (c) classifica­tion of banks assets and liabilities.

Income statement and balance sheet statistics provide information on income state­ments, balance sheets, and capital adequacy by banking groups. Data relate to individual banking groups as defined by country (e. g., Germany: all banks, commercial banks, large commercial banks, savings banks, cooperative banks, regional giro institutions, regional institutions of cooperative banks). Data are provided in national currency and include the following:

• Years covered: 1979 onward, annual, latest update for 2001

• Countries covered: Australia, Austria, Belgium, Canada, the Czec...

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Internal Structure of Unified Supervisory Agencies

Given the arguments that have been outlined, the objective within a single agency must be to create an internal organizational structure that maximizes the potential advantages (e. g., cost efficiency, less regulatory arbitrage), while at the same time guarding against the potential hazards (e. g., heavy bureaucracy, lack of focus). Internal organization could reflect different institutional types or different functional lines. For instance, some super­visory activities (e. g., licensing, prudential control) could be established to cover all insti­tutional types. A number of variations are possible. Country experiences to date suggest that no one model for the internal organization of unified agencies has been notably more successful than any of the others.

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Constructing Scenarios—Use of Macroeconomic Models

Once the key questions or main vulnerabilities of interest have been identified, the next step is to construct a scenario that will form the basis of the stress test. This phase of the process involves an examination of the available data and models that can be used to understand the behavior of the system with respect to the main vulnerabilities. Using those data, one can construct a scenario in the context of some overall macroeconomic framework or model, depending on the complexity of the system and the availability of a suitable model.

The objective of using an explicit macroeconomic model is to link a particular set of shocks to key macrovariables and financial variables in a consistent and forward-looking framework...

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In this report, official administration of banks refers to those forms of insolvency pro­ceedings in which an official authority (e. g., a court-appointed administrator, a banking authority, an administrator appointed by a banking authority) assumes direct managerial control of an insolvent bank, with a view to (a) protecting its assets, (b) assessing its true financial condition, and (c) then either conducting all the necessary restructuring operations or placing the bank in liquidation. Official administration continues until the institution has been restored to soundness or placed in liquidation.

G.4.2 Basic Principles

An effective framework for official administration needs to be built on a number of basic premises, including the following:

• Speed: The threat of bank insolvency needs...

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Second Round Effects

Stress tests can be improved by including second-round effects. In particular, most stress tests assume no realignments of portfolios in response to risk factors. Stress tests are typi­cally applied to balance sheets at a point in time or in conjunction with a forecast over a specific horizon, and the effect is calculated as if the shock were “marked-to-market” or were valued at market prices. This approach is valid if the time horizon is short or if changes in the portfolios take time to implement. For example, assuming only a limited behavioral response in a large loan portfolio over a 1-month horizon may be a reasonable assumption, because it is often difficult to restructure a portfolio in a short time without incurring losses from “fire-sale” prices.22

Such an assumption may ...

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