Financial Sector Advisory Center (FinSAC)

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.