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Financial Stability, Macroprudential Frameworks, and Crisis Preparedness

FinSAC supports client countries in establishing appropriate institutional arrangements for macroprudential policymaking and building the analytic capacity necessary to support decision-makers.

Technical assistance under Pillar 1 includes: 

• Advice and implementation support for?Macroprudential Policies?including tools and methods for the monitoring and analysis of systemic financial risks, and support in ensuring a proper institutional framework for macroprudential policy (i.e. national financial stability councils, operationalization of the crisis management systems, interagency coordination, etc.).?

• Assessment of and recommendations to improve?Crisis Preparedness?frameworks for financial sector policymakers and testing these arrangements through Crisis Simulation Exercises. 

• Recommendations and implementation support to enhance?Deposit Insurance?frameworks in line with international good practice to ensure adequate financing and appropriate use of deposit insurance funds.

• Support to enhance the?Emergency Liquidity Assistance?function and lender-of-last-resort facilities. 

• Framework design and implementation advice on?Systemic?Risk Assessments related to Climate Change such as stress testing and tools to monitor and assess banks¡¯ physical and transition risks stemming from climate change.

Microprudential oversight and Nonperforming Loan resolution

As?supervisory and regulatory frameworks become increasingly complex and principles-based, with a greater emphasis on supervisory discretion, FinSAC supports those responsible for microprudential regulation and supervision.

Technical assistance under Pillar 2 includes:

• Advice on alignment with international?Banking Supervision?good practice models.

• Advice on setting?bank-specific capital requirements?and implementing, for example, the Supervisory Review and Evaluation Process (SREP).

• Developing forward-looking methodologies and tools for the assessment of?Bank Business Models.

• Supporting continuous?benchmarking of Supervisory Models?to identify emerging practices.

• Advice on developing approaches for measuring and supervising?Interest Rate Risk?in the banking books, in line with good practice standards.

• Advice on?supervision of Non-Financial Risks, including IT, outsourcing, and compliance and sanction risks. 

• Supporting the development of?Credit Risk Classification and coverage?methodologies to challenge banks' estimation of expected credit losses.

• Advice on the implementation of microprudential?Bottom-up Stress Testing.

• Advice on?integrating Climate Change-Related Financial Risks?into the supervisory frameworks, including amending supervisory methodologies and issuing supervisory guidelines.

• Supporting the evaluation of?Nonperforming Loan (NPL) resolution?frameworks and advising on reforms aimed at strengthening the supervisory regimes; enhancing legal, judicial, and extrajudicial frameworks; as well as improving the registries and information frameworks. Supporting Viability Assessments of countries¡¯ corporate sectors, aimed at early identification of future non-performing loans.

Bank Recovery and Resolution

FinSAC¡¯s client countries continue to improve their ability to handle failing banks, establishing bank resolution regimes that are aligned with Financial Stability Board¡¯s ¡°Key Attributes of Effective Resolution Regimes for Financial Institutions¡±.

Technical assistance under Pillar 3 includes: 

• Advice on aligning?Bank Recovery and Resolution Regulatory Frameworks?with international best practices and implementation support, especially of primary and secondary legislation.

• Testing of resolution frameworks through?Recovery and Resolution Simulation Exercises. 

• Support to?operationalize Bank Resolution Strategies, including those based on asset transfers and bail-in implementation.

• Advice on the development of a methodology for?Assessing Banks¡¯ Systemicity?as a relevant step in the determination of appropriate resolution/liquidation actions. 

• Advice on?Cross-Border Bank Resolution?and addressing the effects of resolution strategies of home authorities on small host countries.

Climate-related Financial Risks

Physical and transition risks stemming from climate change are covered as a cross-cutting theme touching upon all three pillars of FinSAC¡¯s operations.

Technical assistance includes:  

• Supporting the adoption and implementation of sustainability strategies, with a special focus on risks stemming from climate change.

• Advising central banks and regulators on new analytical tools to monitor and assess banks¡¯ physical and transition risks stemming from climate change.   

• Advising on macroprudential measures to mitigate the systemic impact of climate-related risks.

• Supporting the design of frameworks for climate-related stress testing of banks.