Category Financial Sector Assessment

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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Operational as Well as Financial Restructuring

Bank restructuring must aim at addressing the causes, not just the symptoms, of bank insolvency. The new owners and directors of the bank must eliminate nonprofitable branches, must lay off redundant staff members, and must refocus the bank’s business operations on profitable activities. Moreover, they must ensure that the bank complies with sound financial and prudential ratios. Thus, any restructuring scheme that allows an insolvent bank to survive as a separate entity should ensure that the bank is restored not only to solvency, but also and more important, to profitability so that it can operate on a sound basis over the medium and long term.

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Organization and Team-Design: Issues for the Development Assessment

Because of the diversity of issues and the multiplicity of topics that need to be considered, staffing of the development component of the assessment needs to be designed with great care.

A first challenge is the choice of sectors and infrastructural aspects to be examined in detail. Here the balance that needs to be struck is between (a) the need to assess perfor­mance in relation to services and sectors that are already well established in the country and (b) the exploration of the reasons for gaps and missing markets. For example, an extensive study of securities markets may not be appropriate if only a handful of securities are listed on the stock exchange, yet the scope for improving corporate access to equity may need to be evaluated...

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