Pursuant to that decision, 25 jurisdictions were determined to have systemically important financial sectors, based on 2008 data. A revision of the methodology in 2013, using more recent data, expanded the list to 29 jurisdictions.
Professors Masahiko Takeda and Hiroshi Ugai, Asian Public Policy Program, School of International and Public Policy, Hitotsubashi University, Tokyo.
The RAM presents in a tabular form the FSAP’s assessment of the key risks facing the financial sector, the probability of realization of each risk in the short to medium term, and the expected economic impact.
Examples include the next generation balance sheet solvency and liquidity stress test toolkits (Schmieder et al. 2011 and 2012); the network spillover analysis toolkit (Espinoza & Sole 2010); the integrated framework for solvency and liquidity stress testing (Barnhill & Schumacher 2011); a primer for stress testing pension funds (Impavido 2011); and the multi-sector multi-country extension of the Contingent Claims Analysis (CCA) through the Global Vector Autoregression CCA (CCA-GVAR), developed in cooperation with staff of the European Central Bank (Gray et al. 2013).
The Expert Forum is organized by MCM staff in cooperation with different central banks, is addressed to stress test practitioners in central banks and supervisory authorities, and focuses on latest developments in stress testing tools and techniques. In recent years, such fora were organized in cooperation with the Swedish Riksbank (2011), the Hong Kong Monetary Authority (2012), and the Bank of England (forthcoming, 2014).
This issue is also highlighted in the external consultants’ study on evenhandedness in FSAPs, included in the accompanying background document.
Most of these rely on network analysis based on aggregate exposure data produced by the BIS, with a few countries using also supervisory bilateral data. Market contagion (which operates through prices) was examined in several advanced economies, relying on variety of tools such as CoVaR (2), the Contingent Claims Analysis (CCA)-GVAR approach, and Joint Distress indicators.
The publication of both DARs and FSAP Technical Notes is voluntary for the country.
This discussion excludes AML/CFT assessments, which in principle need to accompany every FSAP, but could take place on a stand-alone basis and could be conducted by the Financial Action Task Force (FATF) or FATF-style regional bodies. In practice, full compliance assessments with the AML/CFT standard were rarely conducted at the same time as the FSAP missions. In its review of the Fund’s AML/CFT policy in March 2014, the Executive Board confirmed that FSAPs should include a timely and accurate discussion of AML/CFT issues based on comprehensive assessments, targeted updates or, where this is not possible, other sources of information.
Targeted BCP DAR for Russia and targeted IOSCO DAR for Canada.
This implementation rate is somewhat higher than the one documented in FSAPs. This may be explained by the fact that the two samples are different: survey responses report implementation by country, while the staff reports implementation by individual recommendations.
Staff has the option to submit to the Board an FSSA for consideration on a stand-alone basis. This option has been exercised in a few instances, mainly to avoid a long time gap between the FSAP discussions with the authorities and Board consideration (in case, for example, of an unexpected delay of the Article IV). Staff intends to continue exercising this option sparingly.
The experience with the first round of mandatory financial stability assessments under the FSAP was reviewed in the paper on “Mandatory Financial Stability Assessments Under the FSAP – Update” in November 2013.
Two new standards have recently been established in the area of safety nets: a standard on deposit insurance by the International Association of Deposit Insurers (IADI), and the FSB’s Key Attributes for Effective Resolution Regimes for Financial Institutions. But these standards have not yet become a regular part of the FSAP, although they are used as benchmarks for the work of the FSAP on financial safety nets.
These will include scenario calibration, defining the perimeter of stress tests, bottom-up stress test design, credit risk, liquidity risk, sovereign risk, and capturing cross-border exposures.
This data hub was launched in March 2013 by the FSB in the context of the G-20 Data Gaps Initiative.
See Chapter III of “2014 Triennial Surveillance Review—Background Studies,” July 2014.
Even raising the average annual number of FSAPs to the level of the previous decade (about 20 FSAPs per year, with all the additional FSAPs taking place in non-systemic countries) would not address the fundamental underlying tension. As an illustration, staff has estimated that this step would cost an additional US$2.75 million per annum and reduce the average gap between FSAPs for non-systemic jurisdictions from the current 14–15 years to 9-10 years.