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The Financial Sector Assessment Program (FSAP) provides a comprehensive, in-depth analysis of the resilience of a country’s financial sector. A crucial part of the IMF’s financial surveillance, it includes “stress tests” of financial institutions, an evaluation of the quality of supervision and regulation of the sector, and an assessment of the crisis management framework. To date, more than three-quarters of IMF’s member countries have undergone assessments.
The purpose of an FSAP is to help countries minimize the occurrence and severity of financial crises. The FSAP was launched in 1999 with two goals in mind: to gauge the stability and soundness of a country’s financial sector and assess the financial sector can contribute to growth and development. FSAPs are done jointly by IMF and World Bank staff in developing and emerging market countries and by the IMF alone in advanced economies. The IMF specializes in the stability aspects while the World Bank focuses on the developmental needs of the financial system.
Whether conducted in the context of a joint IMF-World Bank FSAP or on a stand-alone basis, the stability assessment is produced by the IMF. It covers an evaluation of three components of a country’s financial sector:
1. the source, probability, and potential impact of the main risks to macro-financial stability in the near-term;
2. the country’s financial stability policy framework; and
3. the authorities’ capacity to manage and resolve a financial crisis should the risks materialize.
The key findings of the stability assessment are summarized in the Financial System Stability Assessment (FSSA), prepared by the IMF team. The FSSA is a key input to IMF surveillance.
FSAP findings provide valuable input into the IMF’s broader surveillance or policy advice of countries’ economies, known as Article IV consultations. When the FSAP program began in 1999, assessments were voluntary. In 2010, the IMF made it mandatory for 25 countries with systemically important financial sectors to undergo FSAP assessments every five years. The list was based on the size and interconnectedness of the countries’ financial sectors. In 2013, the IMF’s Executive Board revised the methodology to place greater emphasis on interconnectedness, which expanded the list of countries with systemically important financial sectors to 29.
The 2021 FSAP Review found that stakeholders highly valued the program. In the Review 2021, the Executive Board endorsed the 2013 methodology with minor adjustments, making mandatory financial stability assessment more risk-based. The list of countries mandated to undergo FSAP assessments rose to 47. Of these, 32 countries and the euro area are expected to participate once every five years, while the other 15—many of them emerging market economies—participate every 10 years. The 2021 FSAPs review emphasized the importance of further integrating FSAPs with Article IV consultations and the Comprehensive Surveillance Review.
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