- International Monetary Fund
- Published Date:
- April 2002
© 2002 International Monetary Fund
Production: IMF Graphics Section
Figures: Joseph Kumar
Typesetting: Alicia Etchebarne-Bourdin
Financial soundness indicators: analytical aspects and country practices/V. Sundararajan … [et al.]—Washington, D.C.: International Monetary Fund, 2002.
p. cm.—(Occasional paper, ISSN 0251-6365; NO. 212)
Includes bibliographical references.
1. Financial institutions—Auditing. 2. Bank examination. 3. International Monetary Fund. I. Sundararajan, Vasudevan. II. International Monetary Fund III. Occasional paper (International Monetary Fund); no. 212.
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The following symbols have been used throughout this paper:
… to indicate that data are not available;
— to indicate that the figure is zero or less than half the final digit shown, or that the item does not exist;
– between years or months (e.g., 2000–01 or January–June) to indicate the years or months covered, including the beginning and ending years or months;
/ between years (e.g., 2000/01) to indicate a crop or fiscal (financial) year.
“Billion” means a thousand million.
Minor discrepancies between constituent figures and totals are due to rounding.
The term “country,” as used in this paper, does not in all cases refer to a territorial entity that is a state as understood by international law and practice; the term also covers some territorial entities that are not states, but for which statistical data are maintained and provided internationally on a separate and independent basis.
The development of indicators of financial soundness responds to the need for better tools to assess financial systems’ strengths and vulnerabilities. A broad search for tools and techniques to detect and prevent financial crises was prompted by the international financial turmoil of the late 1990s. More recent episodes of instability have further highlighted the importance of continuous monitoring of financial systems as a crisis prevention tool. The IMF has undertaken a number of initiatives in this area, notably in support of strengthened surveillance of member countries through the joint IMF-World Bank Financial Sector Assessment Program, launched in 1999. Initial efforts were aimed at identifying a broad set of prudential and macroeconomic variables that are relevant for assessing financial soundness—referred to as macroprudential indicators. More recent work has focused on a subset of these indicators—both aggregate bank balance sheet and income statement information, and aggregate indicators of financial fragility of nonfinancial firms and nonbank financial markets—referred to as financial soundness indicators (FSIs).
This paper brings forward recent advances in our understanding of financial soundness indicators with a view to supporting ongoing efforts by national authorities and private institutions worldwide to monitor financial system soundness. The paper also discusses the use of financial soundness indicators in the operational work of the IMF, and identifies significant gaps in knowledge and directions for further work. The material in this paper was originally prepared for discussions in the IMF Executive Board in June 2001.
The insights contained in this paper are the result of the efforts of many. In particular, we would like to express our appreciation for member countries’ participation in the IMF Survey On the Use, Compilation, and Dissemination of Macroprudential Indicators, which helped to provide comprehensive information on country practices. A number of background documents by IMF staff and others referred to in this paper were also critical in distilling analytical lessons on the selection and use of the indicators. We would like to thank also Mahinder S. Gill, Alfredo M. Leone, Pamela Madrid, and Ewe-Ghee Lim for their inputs into this Occasional Paper; Jacqueline Irving and Lucy Ulrich of the External Relations Department for editing and production coordination; and Raja Hettiarachchi and Kiran Sastry for valuable research assistance. The views expressed in this paper are those of IMF staff and do not necessarily reflect the views of national authorities or of IMF Executive Directors.
|Carol S.||Carson Stefan Ingves|
|Statistics Department||Monetary and Exchange Affairs|
Bank for International SettlementsCAMELS
Capital adequacy, asset quality, management soundness, earnings, liquidity, sensitivity to market riskCGFS
Committee on the Global Financial System, BISCPSS
Committee on Payment and Settlement Systems, BISEBIT
Earnings before interest and taxEBITDA
Earnings before interest, tax, depreciation, and amortizationECB
European Central BankFSAP
Financial Sector Assessment ProgramFSI
Financial soundness indicatorFSSA
Financial System Stability AssessmentFX
Group of SevenG-10
Group of TenGDP
Gross domestic productIAIS
International Association of Insurance SupervisorsIMF
International Monetary FundIOSCO
International Organization of Securities CommissionsMPI
Nonbank financial intermediaryNPL
Organization for Economic Cooperation and DevelopmentOTC
Risk-adjusted return on capitalROA
Return on assetsROE
Return on equityROSC
Report on Observance of Standards and CodesSDDS
Special Data Dissemination StandardVaR
Value at Risk