Front Matter

Front Matter

Author(s):
International Monetary Fund
Published Date:
September 2005
Share
  • ShareShare
Show Summary Details

Financial Sector Assessment

A HANDBOOK

© 2005 The International Bank for Reconstruction and Development/The World Bank/The International

Monetary Fund

1818 H Street NW

Washington DC 20433

Telephone: 202-473-1000

Internet: www.worldbank.org

E-mail: feedback@worldbank.org

All rights reserved

First printing September 2005

1 2 3 4 5 09 08 07 06 05

This volume is a product of the staff of the International Bank for Reconstruction and Development/The World Bank/The International Monetary Fund. The findings, interpretations, and conclusions expressed in this paper do not necessarily reflect the views of the World Bank, the International Monetary Fund, their Executive Directors, or the governments they represent.

The World Bank and International Monetary Fund do not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of the World Bank or International Monetary Fund concerning the legal status of any territory or the endorsement or acceptance of such boundaries.

Rights and Permissions

The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The International Bank for Reconstruction and Development/The World Bank/The International Monetary Fund encourage dissemination of their work and will normally grant permission to reproduce portions of the work promptly.

For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center Inc., 222 Rosewood Drive, Danvers, MA 01923, USA; telephone: 978-750-8400; fax: 978-750-4470; Internet: www.copyright.com.

All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: pubrights@worldbank.org.

ISBN-10: 0-8213-6432-4

ISBN-13: 9780821364321

eISBN: 0-8213-6433-8

DOI: 10.1596/978-0-8213-6432-1

Library of Congress Cataloging-in-Publication Data has been applied for.

Cover and publication design: James E. Quigley, World Bank Institute.

Original cover photo: Getty Images.

Contents

Abbreviations and Acronyms

A&A

Accounting and auditing

AML–CFT

Anti-Money Laundering and Combating the Financing of Terrorism

ARIC

Asia Regional Information Center

ATM

Automated teller machine

BAAC

Bank for Agriculture and Agricultural Cooperatives [Thailand]

BCBS

Basel Committee on Banking Supervision

BCP

Basel Core Principles (for Effective Banking Supervision)

BIS

Bank for International Settlements

BRI

Bank Rakyat Indonesia

CAMEL

Capital adequacy, Asset quality, Management soundness, Earnings and profitability, Liquidity, and Sensitivity to market risk

CARAMELS

Capital adequacy, Asset quality, Reinsurance, Adequacy of claims and actuarial, Management soundness, Earnings and profitability, Liquidity, and Sensitivity to market risk

CGAP

Consultative Group to Assist the Poorest

CIDA

Canadian International Development Agency

CPSIPS

Core Principles of Systemically Important Payment Systems

CPSS

Committee on Payment Settlement Systems or Committee on Payments and Settlements Systems

CSD

Central securities depository

CSFB

Credit Suisse First Boston

DB

Defined Benefit

DC

Defined Contribution

DCP

Domestic credit to the private sector

DFI

Development finance institution

DFID

UK Department for International Development

DIS

Deposit insurance system

ECB

European Central Bank

EMDB

Emerging Markets Database

EWS

Early warning systems

FAO

Food and Agriculture Organization of the United Nations

FASB

Financial Accounting Standards Board

FATF

Financial Action Task Force on Money Laundering

FCRA

Fair Credit Reporting Act

FIRST

Financial Sector Reform and Strengthening Initiative

FIU

Financial Intelligence Units

FSAP

Financial Sector Assessment Program

FSIs

Financial soundness indicators

FSLC

Financial Sector Liaison Committee

FSRB

FATF-Style Regional Body

FSSA

Financial System Stability Assessment

FX

foreign exchange

GAAP

Generally Accepted Accounting Principles

GDDS

General Data Dissemination System

GDP

Gross domestic product

GNP

Gross national product

GTZ

Deutsche Gesellschaft für Technische Zusammenarbeit

HI

Herfindahl Index

IAASB

International Auditing and Assurance Board

IAIS

International Association of Insurance Supervisors

IASs

International Accounting Standards

IASB

International Accounting Standards Board

IASC

International Accounting Standards Committee

ICP

Insurance Core Principle

ICR

Insolvency and creditor rights

IDA

International Development Association

IFAC

International Federation of Accountants

IFC

International Finance Corporation

IFCs

International Financial Centers

IFRSs

International Financial Reporting Standards

IFS

International financial statistics

IFSB

Islamic Financial Services Board

IIFS

Institutions offering Islamic Financial Services

IMF

International Monetary Fund

IOSCO

International Organization of Securities Commissions

IPSAS

International Public Sector Accounting Standards

ISA

International Standards for Auditing

KYC

Know-your-customer

LCFI

Large and complex financial institution

LGD

Loss given default

LIBOR

London interbank offer rate

LOLR

Lender of last resort

LSMS

Living Standards Measurement Survey

MFI

Microfinance institution

MFP

Monetary and financial policies

MIX

Microfinance Information exchange

NBFI

Non-bank financial institution

NCD

Negotiable certificate of deposits

NGO

Non-governmental organization

NPL

Non-performing loans

OECD

Organisation for Economic Co-operation and Development

OFC

Offshore Financial Center

OFI

Other Financial Intermediary

OMO

Open market operations

OTC

Over-the-counter

PAYG

Pay-as-you-go

POS

Point of sale

PSB

Postal savings bank

ROA

Return on assets

ROE

Return on equity

ROSCs

Reports on Observance of Standards and Codes

RSSS

Recommendations for Securities Settlement Systems

SACCOs

Savings and credit cooperative organizations

SDDS

Special Data Dissemination Standard

SIC

Standard Industrial Classification

SIDA

Swedish International Development Co-Operation Agency

SME

Small and medium enterprise

SOE

State-owned enterprise

SRO

self-regulatory organization

TRWA

Total risk-weighted assets

UNCITRAL

United Nations Commission on International Trade Law

UNDP

United Nations Development Programme

USD

U.S. dollars

VAR

Value-at-risk

VAT

Value-added tax

WOCCU

World Council of Credit Unions

Preface

The experience of many countries around the world clearly shows that while financial sector development can spur economic growth, financial fragility and instability can seriously harm growth. Following the financial crises of the late 1990s, there has been increasing interest in the systematic assessment of the strengths and weaknesses of financial systems, with the ultimate goal of formulating appropriate policies to foster financial stability and stimulate financial sector development. The Financial Sector Assessment Program (FSAP), a joint World Bank-IMF program introduced in 1999, represents a response to this demand for systematic assessments. The emergence of various financial sector Standards and Codes and the associated Reports on Observance of Standards and Codes (ROSCs) are further examples of the increased focus on financial sector assessments.

Consequently, there has been an increased demand from financial sector authorities in many countries, as well as from World Bank and IMF staff for information on key issues and sound practices in the assessment of financial systems and in the design of policy responses. This Handbook of Financial Sector Assessment is a response to this demand. The Handbook presents an overall analytical framework for assessing financial system stability and developmental needs, providing broad guidance on approaches, methodologies, and techniques of assessing financial systems.

Although the Handbook draws substantially on World Bank and IMF experience with the FSAPs and from the broader policy and operational work in both institutions, it is designed for generic use in financial sector assessments, whether conducted by country authorities themselves, or by World Bank and IMF teams. It is, therefore, our hope that the Handbook will serve as an authoritative source on the objectives, analytical framework and methodologies of financial sector assessments as well as a comprehensive reference book for training on the techniques of such assessments.

The Handbook was prepared under the general oversight of Messrs. Alexander E. Fleming (Sector Manager, Finance and Private Sector Division, World Bank Institute), Tomás J. T. Baliño (Deputy Director, Monetary and Financial Systems Department, IMF), and Larry Promisel (former Director, Financial Sector Global Partnership, World Bank). It is the product of intense collaboration among a large number of staff and experts from both the World Bank and the IMF (primary contributors are listed on the next page). The design, drafting, and editing of the Handbook was coordinated by a team consisting of Mr. V. Sundararajan (Lead Project Consultant, Centennial Group Holdings and former Deputy Director, IMF), Mr. Abayomi A. Alawode (Senior Financial Sector Specialist, World Bank Institute), Mr. Mathew Jones (Senior Economist, IMF), and Mr. Martin Čihák (Economist, IMF).

We wish to thank the entire team for their valuable efforts in bringing this project to fruition.

Cesare Calari

Vice-President

Financial Sector Network

World Bank

Stefan Ingves

Director

Monetary and Financial Systems Department

International Monetary Fund

Contributors

Lead Project Consultant: Mr. V. Sundararajan, Lead Project Consultant, Centennial Group Holdings and former Deputy Director, IMF

World Bank Contributors: Rawan Abdelrazek, Ernesto Aguirre, Abayomi A. Alawode, Nagavalli Annamalai, Mehmet Can Atacik, Thorsten Beck, John Bruce, Alexander E. Fleming, Felice Friedman, Joselito Gallardo, Eric Haythorne, Patrick Honohan, Gordon Johnson, Peter Kyle, Margaret Miller, Bikki Randhawa, Dory Reiling, Paul Allan Schott, Vijay Tata, Craig Thorburn, and Fatouma Ibrahima Wane

IMF Contributors: Greta Mitchell Casselle, Martin Čihák, Peter Clark, R. Sean Craig, Nigel Davies, Paulus Dijkstra, Jennifer Elliot, Gilda Fernandez, Mats Filipson, Eva Gutierrez, Geoffrey Heenan, Socorro Heysen, Matthew Jones, Cem Karacadag, Elias Kazarian, Richard Lalonde, Michael Moore, Aditya Narain, Obert Nyawata, Thordur Olafsson, Eric Parrado, Marc Quintyn, Michael Taylor, In Won Song, Kalin Tintchev, Jan-Willem van der Vossen, and Jan Woltjer

    Other Resources Citing This Publication