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Front Matter

International Monetary Fund. Independent Evaluation Office
Published Date:
February 2019
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Independent Evaluation Office

of the International Monetary Fund




About the IEO

Established in 2001, the Independent Evaluation Office (IEO) of the IMF conducts independent and objective evaluations of the IMF’s policies, activities, and products. In accordance with its terms of reference, it pursues three interrelated objectives:

  • ▸ To support the Executive Board’s institutional governance and oversight responsibilities by contributing to accountability.
  • ▸ To enhance the learning culture within the Fund by increasing the ability to draw lessons and integrate improvements.
  • ▸ To strengthen the Fund’s external credibility through enhanced transparency.

For further information on the IEO and its ongoing and completed evaluations, please see or contact the IEO at +(1) 202.623.7312 or at


Independent Evaluation Office

of the International Monetary Fund




©2019 International Monetary Fund


Names: Lamdany, Ruben | Takagi, Shinji | Dhar, Sanjay | Stedman, Louellen | Kim, Jung Yeon | Abrams, Alisa | Monasterski, Chris | Wojnilower, Joshua | International Monetary Fund, publisher. | International Monetary Fund. Independent Evaluation Office, issuing body.

Title: IMF financial surveillance.

Description: [Washington, DC] : International Monetary Fund, [2018]. | November 20, 2018. | “This report was prepared by an IEO team led by Ruben Lamdany. The team comprised Shinji Takagi, Sanjay Dhar, Louellen Stedman, Jung Yeon Kim, Alisa Abrams, Chris Monasterski, and Joshua Wojnilower.” | Includes bibliographical references.

Identifiers: ISBN 9781484393352 (paper)

Subjects: LCSH: International Monetary Fund. | International finance. | Personnel management.

Classification: LCC HG3881.5.I58 L363 2018

Publication orders may be placed online, by fax, or through the mail: International Monetary Fund, Publication Services P.O. Box 92780, Washington, DC 20090, U.S.A.

Tel: +(1) 202.623.7430 | Fax: +(1) 202.623.7201


Background Papers

The following Background Papers are available on the IEO website

BP/18-02/01.IMF Bilateral Financial Surveillance
BP/18-02/02.Assessing the FSAP: Quality, Relevance, and Value Added
BP/18-02/03.IMF Multilateral Financial Surveillance
BP/18-02/04.Collaboration in Financial Regulatory Reform: The IMF, the Financial Stability Board, and the Standard Setting Bodies
BP/18-02/05.Strengthening IMF Financial Surveillance: Organizational and Human Resource Issues
BP/18-02/06.Analytical Frameworks and Toolkits in IMF Financial Surveillance
BP/18-02/07.Emerging Technology-Related Issues in Finance and the IMF—A Stocktaking
BP/18-02/08.IEO Evaluation of IMF Financial Surveillance: Survey Results
BP/18-02/09.IMF Financial Surveillance in Action: Country Case Studies from Europe and Sub-Saharan Africa
BP/18-02/10.IMF Financial Surveillance in Action: Country Case Studies from Asia and the Western Hemisphere

The following conventions are used in this publication:

  • ▸ An en dash (–) between years or months (for example, 2017–18 or January–June) indicates the years or months covered, including the beginning and ending years or months; a slash or virgule (/) between years or months (for example, 2017/18) indicates a fiscal or financial year, as does the abbreviation FY (for example, FY2018).
  • ▸ “Billion” means a thousand million; “trillion” means a thousand billion.

Some of the documents cited and referenced in this report were not available to the public at the time of publication of this report. Under the current policy on public access to the IMF’s archives, some of these documents will become available three or five years after their issuance. They may be referenced as EBS/YY/NN and SM/YY/NN, where EBS and SM indicate the series and YY indicates the year of issue. Certain other types of documents may become available 20 years after their issuance. For further information, see

As used in this evaluation report, the terms “country” and “state” do not in all cases refer to a territorial entity that is a state as understood by international law and practice.


Monitoring the stability of the global financial system and warning about risks and vulnerabilities are at the very core of the IMF’s mandate. This evaluation found that since the Global Financial Crisis, the Fund’s financial surveillance work has been substantially upgraded. The Financial Sector Assessment Program (FSAP) has delivered high-quality, in-depth assessments of the most globally systemic jurisdictions, as countries have strived themselves to make their financial systems more resilient. The IMF has contributed to the development of stress tests and a broad range of diagnostic tools, explored new policy approaches, and shared these innovations with the membership. Article IV surveillance has paid increased attention to macrofinancial linkages. And the Global Financial Stability Report and Early Warning Exercise are widely considered leading sources of analysis and insight on the global financial system.

While recognizing these achievements, this evaluation finds considerable room for further improvement. The IMF’s financial surveillance has been uneven. With the expansion of products and activities, the IMF has faced difficult trade-offs in the face of resource constraints. Strengthening the integration of the FSAP with Article IV surveillance remains a key challenge. The value-added of the FSAP could be increased by moving to a more dynamic and risk-based approach to allocation of resources across countries and issues. The report also identified potential for greater rigor and transparency in multilateral surveillance, as well as enhanced contributions by the IMF to the global regulatory agenda. Fundamental to progress will be accelerating the build-up of expertise needed for macrofinancial surveillance, including by recruiting and developing the needed in-depth experience and skills.

The report sets out six recommendations aimed at strengthening IMF financial surveillance through a combination of new initiatives and adjustments to existing programs. I am pleased that all of the recommendations received broad support from the Managing Director and from Executive Directors when they met to discuss the report in January 2019. Crucially, most Directors agreed that the IMF needs to devote additional resources to strengthening financial surveillance, given the IMF’s position as the only international financial institution with the mandate and ability to conduct this function across a wide range of countries as well as the global system as a whole.

I am encouraged by the positive responses of the Managing Director and the Executive Board to this evaluation, and I look forward to more detailed decisions in the year ahead on how the IMF will move forward to boost its effectiveness in this crucial area.

Charles Collyns

Director, Independent Evaluation Office


This report was prepared by an IEO team led by Ruben Lamdany.

The team comprised Shinji Takagi, Sanjay Dhar, Louellen Stedman, Jung Yeon Kim, Alisa Abrams, Chris Monasterski, and Joshua Wojnilower.

The thematic background papers for the report were written by Gerard Caprio Jr., Stephen G. Cecchetti, Dimitri Demekas, Olivier Jeanne, Louellen Stedman, Shinji Takagi, and Jeromin Zettelmeyer, and the country case studies were written by Jeffrey Anderson, Akira Ariyoshi, Monica de Bolle, Sanjay Dhar, David Dollar, Jean-Pierre Landau, Latifah Merican Cheong, David Miles, John Murray, and Mthuli Ncube.

The evaluation benefited from discussions with participants at workshops that took place in Washington, London, and Brussels. However, the final judgments are the responsibility of the IEO alone. Annette Canizares, Arun Bhatnagar, Divina Marquez, and Olga Lefebvre provided administrative assistance and Roxana Pedraglio and Esha Ray provided editorial and production management assistance.

The report was approved by Charles Collyns.



advanced economy


Anti-Money Laundering and Combating the Financing of Terrorism


Bank for International Settlements


emerging market economy


Early Warning Exercise


Financial Action Task Force


Financial Sector Assessment Program


Financial Stability Board


Financial Stability Assessments


Financial System Stability Assessment


Financial System Stability Review


full-time [staff] equivalent


Group of Twenty


gross domestic product


Global Financial Crisis


Global Financial Stability Report


Global Systemically Important Financial Institution


Integrated Surveillance Decision


low-income country


Monetary and Capital Markets Department (IMF)


Offices of Executive Directors (IMF)


Risk-Assessment Matrices


Research Department (IMF)


5 jurisdictions with systemic financial sectors


29 jurisdictions with systemically important financial sectors


Systemically Important Financial Institution


Strategy, Policy, and Review Department (IMF)


standard setting body


technical assistance


Triennial Surveillance Review


Vulnerability Exercise for Emerging Markets


World Economic Outlook

Executive Summary

In response to the Global Financial Crisis (GFC), the IMF launched many initiatives to strengthen financial surveillance to better advise member countries of vulnerabilities and risks and to foster greater resilience. Among these initiatives are: adopting decisions that gave the IMF clearer responsibilities over financial sector stability and cross-country spillovers; making periodic financial stability assessments mandatory for 29 jurisdictions determined to have systemically important financial sectors (S29); invigorating efforts to integrate financial and macroeconomic analysis in bilateral and multilateral surveillance; enhancing cooperation with the Financial Stability Board (FSB) and standard-setting bodies (SSBs) to promote reforms and monitor agreed standards; and taking steps to recruit and train greater financial expertise.

While these initiatives have not yet been tested by a major crisis, the efforts have delivered a substantial upgrade of the Fund’s financial surveillance work. The Financial Sector Assessment Program (FSAP), focused on the S29, has provided high-quality in-depth assessments as countries themselves have strived to make their financial systems more resilient. The IMF has contributed to the development of stress tests and a broad range of diagnostic tools, explored new policy approaches (e.g., macroprudential tools), and brought such innovations to the broader membership. Article IV surveillance has stepped up attention to macrofinancial linkages. And the Global Financial Stability Report (GFSR) and Early Warning Exercise (EWE) are now respected as leading sources of insights on the global financial system. This has occurred as a rising share of IMF economists have acquired experience in financial sector issues.

While recognizing these achievements, this evaluation finds that the quality and impact of the IMF’s financial surveillance has been uneven. The expansion of products and activities has presented the Fund with difficult trade-offs between bilateral and multilateral surveillance; between countries with systemically important financial sectors and other member countries; and between financial surveillance and other activities, including emerging macrocritical issues. Moreover, resource constraints have slowed the needed buildup of financial and macrofinancial expertise, as others have worked hard to raise their game. These are critical issues, given the IMF’s position as the only international financial institution with the mandate and ability to conduct financial and macrofinancial surveillance over a full range of countries as well as the global economy, and given that these issues are at the core of the IMF’s responsibilities.

Thus, notwithstanding the real progress to date, the IMF should address a number of challenges to further strengthen the effectiveness of financial surveillance. The recommendations in this evaluation would not entail a major shift in the IMF’s goals and strategy. Rather, they seek to encourage faster progress and greater traction by combining new initiatives with sustained efforts to build on ongoing work programs and a willingness to fine-tune priorities to meet changing needs.

Bilateral Surveillance

There is still a need to strengthen financial and macrofinancial analysis in Article IV consultations, including through closer integration with the FSAP. Article IV teams do not have the breadth and depth of skills and resources to adequately identify and explore financial stability risks. While FSAP teams are better equipped for this purpose, they often lack in-depth country knowledge, and the assessments are too infrequent to detect fast-developing financial stability risks. In their planning, implementation, and follow up, FSAPs and Article IV consultations should be more systematically conducted as parts of the same process. Concretely, FSAPs could provide a periodic “deep dive” to identify key risks and vulnerabilities in the form of a new financial vulnerability matrix, while Article IV consultations could provide annual checkups to track FSAP-identified concerns, using techniques and templates suggested by the FSAP and taking care to adapt in a timely fashion to evolving circumstances. To implement such a strategy, Article IV teams for countries where financial vulnerabilities are potentially of serious concern will require a significantly increased allocation of economists from the Monetary and Capital Markets Department (MCM). In countries with no recent FSAP, Article IV teams would have to intensify their preparatory work to identify financial and macrofinancial vulnerabilities and develop policy advice, with support from MCM and other departments.

The allocation of FSAP resources should be more flexible and dynamic, and more clearly risk-based. The current approach, which requires mandatory assessments every five years for the S29, risks paying too little attention to countries that fall just outside the boundary but may face serious financial vulnerabilities, while paying too much attention to relatively low risk yet more sizable and connected financial sectors. Under an alternative approach, only the five most systemically important financial sectors (S5) would continue to be covered every five years on a mandatory basis. For the rest of the membership, each year as part of the work program discussions with the Executive Board, Management would propose a rolling list of countries that would be covered by FSAPs over the following two or three years. These countries would be identified based on criteria similar to those currently in place for prioritizing non-mandatory FSAPs, approved by the Board in the context of the 2014 FSAP review, which include financial and macroeconomic vulnerabilities and take into account the need to maintain a balance across regions and levels of financial development. This alternative approach would allow wider and more risk-based country coverage.

The scope and focus of FSAPs should be more differentiated across countries and more closely tailored to country circumstances, thereby raising value added and traction. FSAPs in jurisdictions with the largest and most sophisticated financial systems are hugely resource intensive but subject to diminishing returns. In those countries already conducting regular high-quality stress tests, FSAPs could focus on reviewing the authorities’ models, designing risk scenarios, and discussing the results of the tests and critical stability risks. The FSAP advice should be fully anchored in the local circumstances and not overly reliant on off-the-shelf “international best practice” more suited in other contexts.

Multilateral Surveillance and Global Financial Regulatory Architecture

The traction of multilateral surveillance could be further increased through greater rigor and transparency. The GFSR and the EWE are widely viewed as providing valuable and sometimes pathbreaking analysis, particularly in the GFSR’s analytical chapters and the EWE’s outside-the-box thinking. The GFSR is appreciated for being more candid than bilateral surveillance while generally being careful not to heighten market instability. Still, the impact of the GFSR could be enhanced by making the messages of Chapter 1 more convincing to country authorities. More thorough checking with in-house country experts and making the analytical and empirical background work more easily accessible would be helpful to this end. The EWE’s impact could potentially be increased through broader dissemination of the analysis beyond the initial very restricted audience and closer coordination with the FSB on topic selection to achieve greater synergies, although care must be taken not to compromise the value of an already successful product.

There is room to strengthen the IMF’s contribution to the global regulatory agenda in areas of its comparative advantage by working more closely with international partners. Key partners like the FSB and SSBs generally appreciate the Fund’s contributions, including its analytical work and its independent and global perspective, and value its role representing countries that are not members of these organizations. In turn, the IMF respects the lead role of the FSB and SSBs in developing new rules and regulatory frameworks. Looking forward, and dependent on resource availability, the IMF could increase its contribution to assessing the impact of reforms at the country level, leveraging its FSAP and Article IV work and its macrofinancial expertise. Also, working with international partners, the IMF would be well placed to contribute to analyzing cross-border transmission channels and to developing stress tests for the global financial system, although the feasibility of this work would depend on increased access to granular data on global systemically important financial institutions (G-SIFIs).

Enhancing Tools and Building Expertise

To enhance its value added on financial stability issues, the IMF should intensify efforts to be a global center of excellence on financial and macrofinancial research. While the IMF cannot be expected to be at the cutting edge on all issues, it should expand research on issues within its comparative advantage, particularly on models to analyze macrofinancial linkages and cross-border spillovers and tools to identify and assess vulnerabilities and risks.

The IMF should sustain and extend efforts to develop financial expertise among its staff. A rising share of fungible macroeconomists has experience with financial sector work, but additional efforts are still needed to ensure all country teams have adequate skills. Further, the Fund seems short of deep financial expertise. A key step will be to provide more attractive career paths for financial economists that allow for continued specialization and promotion to senior managerial levels.


Consideration should be given to increasing the resource envelope for financial surveillance if the Fund is to meet its goals and mandate. Uneven results in mainstreaming macrofinancial work into Article IV surveillance, competition for scarce FSAP resources, scope to increase its contribution on the global regulatory agenda, and the potential for further gains from strengthening analytical work all suggest that existing budgetary resources are under strain. The budgetary envelope for financial surveillance has increased somewhat since the 2012 Financial Surveillance Strategy was launched but it is still only around the levels of the mid-2000s, before the GFC.

The highest priority for additional resources would be to strengthen financial and macrofinancial surveillance in Article IV consultations, which would require a larger pool of financial and macrofinancial talent. Enhancing the IMF analytical toolkit would also require a (more modest) increase in resources. Expanding recruitment, training, and retention of financial economists may require financial incentives, in addition to offering better career prospects. Other recommendations need not require additional resources. It should be possible to expand coverage and increase the value added of FSAPs, provided that the number of mandatory FSAPs is greatly reduced and a more flexible approach is adopted to allocation of FSAP resources. The changes recommended to enhance the traction of multilateral surveillance could be achieved largely by some reallocation of existing resources.

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