IMF published a working paper that identifies common international threads in the data needed for financial stability analysis and suggests ways to address these. The paper discusses how financial stability is analyzed, identifies the datasets typically used in financial stability analysis, addresses the data gaps that have emerged, and sets out proposals for how economic and financial statistical manuals can better meet the financial stability data needs, without undermining the conceptual framework.
The paper discusses the governance arrangements that have emerged for financial stability assessment. This includes tools such as broad-based capital tools (for example, dynamic provisioning, countercyclical capital buffers, and time-varying leverage ratio caps); sectoral capital and asset-side tools (for example, foreign currency loans to corporates, caps on loan-to-value, debt-service-to-income, and loan-to-income ratios); and liquidity-related tools (such as the liquidity coverage ratio); and the tools to contain maturity mismatch (such as core funding ratios) and price-based tools (such as a levy on volatile funding). Other policy tools include capital surcharges for global and domestic systemically important institutions and increases in risk-weights and large exposure or concentration limits. The report also highlights that stress tests have increasingly become integral to financial stability analysis as a method of testing the resilience of the financial sector. There remains room for improvement to use stress testing as a tool for macro-prudential risk assessment going beyond its traditional use for micro-prudential supervision.
The report also highlights that policies have been developed to address potential financial stability risks arising from non-bank activities, such as central clearing of over-the-counter derivatives, and from market infrastructure, such as ensuring the resilience of central counterparties (for example, margining requirements and liquidity resources). However, the policy applications of financial stability analysis and the tools used to meet financial stability needs are still developing. The paper concludes that more work is required to meet financial stability analysis data needs, not least in implementing the initiatives underway. This includes data on shadow banking, capital flows, and corporate borrowing, as well as the increased demand for granular data. The paper notes that, while the specific datasets used can differ across country and over time, common patterns of data use emerge.
Related Link: Working Paper on Financial Stability Analysis (PDF)
Keywords: International, Banking, Securities, Insurance, Financial Stability Analysis, IMF
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