Preventive Measures (to be taken by financial institutions and nonfinancial businesses)
4. Secrecy laws should not prevent implementation of the recommendations. 5. Financial institutions and nonfinancial businesses should have an obligation to carry out customer due diligence, including identifying and verifying …
Credit Registries, Efforts to Strengthen Credit Risk Measurement, and New Basel Capital Accord (Basel II)
Credit registries possess enormous potential as a key tool in the hands of supervisory authorities that would enable those authorities to face the challenges of implementation of Basel II.13 Moreover, …
Country Selection Process—Selection Criteria
The participation in the FSAP is voluntary, and countries routinely volunteer to participate. In addition, Bank and Fund staff and management select countries for participation in FSAP (new assessment or …
Overall Framework for Stability Analysis and Assessment
The analytic framework to monitor financial stability is centered around macroprudential surveillance and is complemented by surveillance of financial markets, analysis of macrofinancial linkages, and surveillance of macroeconomic conditions. These …
Securities Markets
The sectoral development assessment is to some extent subsumed in International Organization of Securities Commissions’s (IOSCO’s) Objectives and Principles of Securities Regulation (see box 4.5). Investor protection, fairness, efficiency, and …
Observance in Law and Practice
The methodology for the assessment of the ICPs calls for observance both in law and in actual practice. For most criteria, it is not sufficient simply to consider whether or …
Non-bank, Non-profit NGO MFIs
Non-bank, non-profit NGO MFIs include (a) mixed-purpose NGOs that have credit provisions in their socially oriented activities and (b) specialized credit-only MFIs. Those MFIs are generally private sector-owned institutions and …
Financial Safety Nets
A deposit insurance scheme for bank deposits or for policyholder and investor protection schemes that are designed for insurance and capital markets should be explicitly and clearly defined in laws …
Pillar III and Market Discipline
Pillar III (market discipline) of the New Basel Capital Accord is intended to complement the minimum capital requirements laid out in Pillar I and the supervisory review (of capital) process …
Effect of Financial System Soundness on Debt Sustainability
Debt sustainability refers to the ability of a borrower to service a given stock of debt, given the anticipated payments of interest and principal. Debt servicing ability depends on the …
Aspects of Financial Safety Nets
Financial safety nets consist of three main elements: (a) a framework for liquidity support, (b) deposit insurance plus investor and policyholder protection schemes, and (c) crisis management policies. Each element …
Appropriate Legal Protection of Banking Authorities and Their Staff Members
Laws should grant legal protection for bank authorities and their staff members to fulfill their responsibilities. Legal protection should be coupled in a balanced manner with the legal accountability necessary …
Assessing Financial System Integrity—Anti-Money Laundering and Combating the Financing of Terrorism
Both the World Bank and IMF have long been involved in international efforts to strengthen financial sector supervision and to promote good governance, which, among other things, both contribute to …
Scope and Content of International Accounting and Auditing Standards
International accounting and auditing standards have been developed respectively by the International Accounting Standards Board (IASB) and its predecessor the International Accounting Standards Committee (IASC),7 and by the International Federation …
Monetary and Foreign Exchange Markets—Microstructure and Functioning
Market microstructure refers to the mechanics of price formation and liquidity provision, whereas market functioning is about the effectiveness and reliability of those mechanics.6 A well-functioning market is one where …
Breadth of the Financial System
Data on the financial breadth or penetration often serve as proxies for access of the population to different segments of the financial sector. Well-functioning financial systems should offer a wide …
Review of Legal, Informational, and Transactional Technology Infrastructures for Access and Development
The major cross-cutting infrastructures can be grouped under the three headings of legal, informational, and transactional technology.5 The robustness of legal infrastructures is universally acknowledged as crucial to a healthy …
Bank Insolvency Procedures: Emerging Bank-Fund Guidelines
Effective bank insolvency procedures form an essential part of the supervisory framework and are also part of a proper financial safety net. Effective procedures help in reducing moral hazard. An …
Assessing Institutional Structure and Regulatory Arbitrage
The appropriateness of the institutional structure for supervising OFIs should consider the overall institutional framework for financial supervision and the scope of the OFIs’ activities within that framework. The number …
Institutional and Other Measures
26. A country should have established a financial intelligence unit. 27. A country should have a designated law enforcement authority for money-laundering and financing-terrorism offenses. 28. Law enforcement authority should …
Role of Credit Rating Agencies in Financial Stability and Development
Credit Rating Agencies—or External Credit Assessment Institutions, as referred to in the New Basel Capital Accord—provide independent, forward-looking “opinions” to investors on the credit worthiness—or ability and willingness to service …
Publication Policies
The publication and distribution policies for FSAP documents are based on decisions of the Bank and Fund Boards after the 2003 review of the FSAP by both Boards, and after …
Macroeconomic and Financial Market Developments
An analysis of macroeconomic and financial developments provides an important context for the analysis of financial sector vulnerabilities. The goal of the surveillance of macroeconomic developments and of financial markets …
The Demand-Side Reviews and the Effect of Finance on the Real Sector
Whereas stability assessments have normally emphasized the regulator and the regulated financial intermediaries and markets with comparatively little focus on the system’s users,19 development assessments are interested in the users …
Reinsurers, Policyholders, Beneficiaries, and Customers
The ICPs depend on the definitions of the terms that the IAIS uses in preparing all of their documents. Most of the terms are defined in the IAIS glossary that …
Membership-Based CFIs
CFIs are (a) multipurpose cooperative associations (e. g., producers, services, marketing, and rural cooperatives) that include savings and credit functions; and (b) single-purpose, membership-based, financial cooperative organizations (e. g., credit …
Commercial Laws
Key components of commercial laws that affect the sound functioning of financial institutions and markets include laws that define the regime for formation of companies, corporate governance of both financial …
Annex 10.A Code of Good Practices on Transparency in Monetary and Financial Policies
The Code of Good Practices on Transparency in Monetary and Financial Policies (MFP Transparency Code) consists of a set of good transparency practices for central banks and monetary authorities (I—IV) …
Effect of Financial Soundness on Growth and Financial Development
The issue of whether financial sector soundness influences growth has received little attention in cross-country empirical research. There is a growing consensus that more finance (i. e., a larger financial …
Frameworks for Liquidity Support
Liquidity support is a key element of the financial sector safety net. Two somewhat distinct functions—one operating at normal times and another in times of crisis—need to be identified. The …
Transparency
For a banking authority, the combination of a precise mandate with a high degree of transparency in its implementation is crucial because it reduces simultaneously the opportunities for (a) the …
AML-CFT Standards—Links to Stability and Institutional Development
Money laundering can have potentially negative consequences for a country’s macroeconomic performance, can impose welfare losses, and may also have negative cross-border externalities. For example, it could compromise bank soundness …
ROSCs and Role of the Bank and the Fund
As part of the FSAP-ROSC initiative,11 the World Bank has developed a program to assist member countries in strengthening their financial reporting regimes through theimplementation of IFRS and ISA. The …
Public Debt Management and the Government Securities Market[22]
2004). Consequently, poor debt structures could be obvious signs of weakness in the debt management framework, particularly in the risk management framework. The Guidelines for Public Debt Management (IMF and …
Competition, Concentration, and Efficiency
Competition in the financial system can be defined as the extent to which financial markets are contestable and the extent to which consumers can choose a wide range of financial …
