Licensing Implication of Bank Insolvency
The law should clearly specify the relationship between the declaration of a bank’s insolvency and its status as a licensed institution. In a number of countries, the withdrawal of an …
Credit Risk
Credit risk is the risk that counterparties or obligors will default on their contractual obligations. It refers to the risk that the cash flows of an asset may not be …
Key Features of the Legal Framework in the Context of Systemic Crises [33] [34]
crisis management (e. g., bank restructuring agency), (b) the need for coordination and exchange of information among all government agencies (e. g., high-level financial stability policy committee), (c) clear legal …
Data Sources for Financial Sector Assessments
C.1 Overview Data sources for financial sector assessments can be broadly divided into national sources and commercial databases. National sources use supervisory and national accounts data, whereas commercial databases rely …
Types of Unified Supervision
The decision on the type of unified supervision agencies—whether based on limited objectives or cross-sectoral unification of all objectives—also gives rise to complex trade- Table F.1. Countries with a Single …
Identifying Vulnerabilities
The first stage in the stress-testing process is the identification of the main vulnerabilities. Narrowing the focus of the exercise permits a more refined analysis, because it is unrealistic to …
Rights of Shareholders and Creditors in the Context of Bank Insolvency
The survival of shareholders’ governance rights can significantly complicate the search for an effective bank resolution. To avoid this eventuality, a sound bank insolvency regime can transfer control over the …
Other Risks
Stress tests can be performed on other risks, including liquidity risk, commodity risk, or equity price risk. Asset liquidity risk refers to the inability to conduct a transaction at current …
Assessment of Pension Schemes from a Financial Sector Perspective
A pension plan is a long-term financial contract that promises to pay a retiring worker a sum of money intended to support old age consumption (Mitchell 2002, p. 2). Pension …
OECD Databases
The OECD Bank Profitability Statistics Database has three main components: (a) income statement and balance sheet statistics, (b) structure of financial system, and (c) classification of banks assets and liabilities. …
Internal Structure of Unified Supervisory Agencies
Given the arguments that have been outlined, the objective within a single agency must be to create an internal organizational structure that maximizes the potential advantages (e. g., cost efficiency, …
Constructing Scenarios—Use of Macroeconomic Models
Once the key questions or main vulnerabilities of interest have been identified, the next step is to construct a scenario that will form the basis of the stress test. This …
Definition
In this report, official administration of banks refers to those forms of insolvency proceedings in which an official authority (e. g., a court-appointed administrator, a banking authority, an administrator appointed …
Second Round Effects
Stress tests can be improved by including second-round effects. In particular, most stress tests assume no realignments of portfolios in response to risk factors. Stress tests are typically applied to …
Assessment Framework [36] [37]
H.2 Importance of Regulating and Supervising Pension Systems Effective oversight of pension systems is an integral component of financial sector stability because of the social, fiscal, and global financial ramifications …
European Central Bank Monetary Statistics
The European Central Bank (ECB) publishes—as part of its monetary statistics—aggregated and consolidated balance sheets of the euro area monetary financial institutions, as well as details on national aggregated balance …
Role of the Central Bank
A key issue in any institutional structure of regulatory and supervisory agencies is the position and role of the central bank. In the vast majority of countries, the central bank …
Balance-Sheet Implementation
Once a set of adjustment scenarios has been produced in a consistent macroframework, the next step is to translate the various outputs into the balance sheets and income statements of …
Basic Elements of the Official Administration Regime
The report describes sound practices in relation to triggers for official administration and for the phases of official administration, including diagnosis and restructuring of insolvent banks. The report also discusses …
Stress Testing of Insurance Companies
Stress testing of insurance company balance sheets and income statements is not as well developed in financial stability analysis as in stress testing of banks. Insurance companies are generally considered …
Income and Household Security
Pensions provide a critical source of income security for workers in their retirement years. The pensions are often long term in nature (60 years or more). The significance of well …
Bank for International Settlements (BIS)
BIS publishes on its Web site the following databases that are of interest for financial sector assessments: consolidated banking statistics, international banking statistics, securities statistics, derivatives statistics, and payment and …
Banking Resolution and Insolvency—Emerging World Bank and International Monetary Fund Guidelines
G.1 Bank Insolvency Framework: Objectives and Scope G.1.1 Objectives In early 2002, the World Bank and the International Monetary Fund (IMF) in coordination with the Bank for International Settlements (BIS), …
Execution, Scope, and Coverage
The first question to consider in implementing a system-focused stress test is who crunches the numbers: the supervisory agency or central bank, or the institutions themselves? Ideally, individual institutions should …
Key Objectives
The purpose of restructuring is to ensure the continuation of the bank’s business, in whole or in part, as an economic unit (“going concern”) on a financially sound basis. A …
Selected Organizational Issues
The FSAP Procedures Guide covers both assessments and updates. In addition, assessments (countries and economies that have not yet participated in the program) and reassessments (when the passage of time …
Summary of FSAP Experience25
Stress tests have been performed for every country participating in the FSAP. The tests are designed to provide a quantitative measure of the vulnerability of the financial system to different …
Issues of Funding
As populations mature, the relative size of pension liabilities and the related investment risks have grown accordingly and have, in many instances, exceeded expectations. Consequently, greater attention is being called …
Asia Regional Information Center
The Asia Regional Information Center (ARIC Database) includes capital adequacy and nonperforming loan indicators for the financial sector plus the debt-to-equity and return on equity indicators for the corporate sector. …
Background
World Bank-IMF staff members have carried out a broad consultative process to prepare a draft report on the bank insolvency framework. A number of global and regional seminars, with participation …
The Calibration of Shocks
Another key question to address in implementing a system-focused stress test is how big are the shocks? Stress testing involves discovering the effect of exceptional but plausible events; therefore, the …
Operational as Well as Financial Restructuring
Bank restructuring must aim at addressing the causes, not just the symptoms, of bank insolvency. The new owners and directors of the bank must eliminate nonprofitable branches, must lay off …
Organization and Team-Design: Issues for the Development Assessment
Because of the diversity of issues and the multiplicity of topics that need to be considered, staffing of the development component of the assessment needs to be designed with great …
Benchmarking and Decomposing Interest Rate Spreads and Margins
The analysis of interest spreads and margins can assist assessors in benchmarking a country’s banking system and in identifying and quantifying major deficiencies and impediments to depth, breadth, and efficiency …
Regulation and Supervision of Public and Government Pension Funds: Risks and Regulatory Responses5
Public pension plans are schemes, social security or similar, whereby the government administers the payment of pension benefits. The basic goal is to provide benefits for the population at large. …
