Integration of financial sector issues into bilateral surveillance has been a long-standing challenge. Financial stability is a key component of the domestic and external stability of members and is important for the promotion of the “stable system of exchange rates” envisaged under Article IV. But although financial sector issues and policies are at the core of the Fund’s surveillance mandate, their effective integration has been a challenge. To address this challenge, it is proposed to adopt a more risk-based approach to financial sector surveillance by making FSAP stability assessments part of Article IV surveillance for members with systemically important financial sectors.

Recognizing the important impact that a member’s domestic economic and financial policies can have on systemic stability, Article IV of the IMF’s Articles of Agreement establishes obligations for members respecting the conduct of these policies, including their financial sector policies. An examination of members’ financial sector policies is important in all cases of bilateral surveillance, and three quarters of the Fund’s membership has already undergone a financial stability assessment. With this Decision, the Fund decides that, taking into account the framework described above and the overall purpose of surveillance, heightened scrutiny should be given in bilateral surveillance to the financial sector policies of those members whose financial sectors are systemically important, given the risk that domestic and external instability in such countries will lead to particularly disruptive exchange rate movements and undermine systemic financial and economic stability. The mandatory financial stability assessments undertaken under this Decision will consist of the following elements: a) an evaluation of the source, probability, and potential impact of the main risks to macro-financial stability in the near-term for the relevant financial sector; b) an assessment of the authorities’ financial stability policy framework; and c) an assessment of the authorities’ capacity to manage and resolve a financial crisis should the risks materialize.

Integration of financial sector issues into bilateral surveillance has been a long-standing challenge. Financial stability is a key component of the domestic and external stability of members and is important for the promotion of the 'stable system of exchange rates' envisaged under Article IV. But although financial sector issues and policies are at the core of the Fund's surveillance mandate, their effective integration has been a challenge. To address this challenge, it is proposed to adopt a more risk-based approach to financial sector surveillance by making FSAP stability assessments part of Article IV surveillance for members with systemically important financial sectors.

This paper presents the staff analysis underpinning two central elements of the proposal to make financial stability assessments under the FSAP mandatory for members with systemically important financial sectors: the definition of systemic importance used in the paper and the methodology for identifying members with systemically important financial sectors (Section II); and the review of the literature and industry practices that form the basis for the staff proposal to conduct these mandatory financial stability assessments at a frequency of about three years (Section III).

This report summarizes the findings of the Financial Sector Assessment Program (FSAP) Update for Spain. Although there is a core of strong banks that are well managed and appear resilient to further shocks, vulnerabilities remain. Substantial progress has been made in reforming the former savings banks, and the most vulnerable institutions have either been resolved or are being restructured. Recent measures address the most problematic part of banks’ portfolios. Moving ahead, a further restructuring and recapitalization of some of the remaining weaker banks may be needed as a result of deteriorating economic conditions.

Ireland has considerably strengthened financial sector regulation and supervision since the 2016 FSAP, aided by the ECB/SSM, and is working with European and international regulators to strengthen oversight of the large market-based finance (MBF) sector. This strengthening is evidenced by a successful navigation through the challenges of Brexit and the pandemic. Despite global headwinds, Ireland is exiting the pandemic with strong economic growth and a highly capitalized and liquid banking system. The financial system has grown rapidly and in complexity, especially after Brexit, and Ireland has become a European base for large financial groups. The MBF sector has grown to the second largest in Europe, with global interlinkages.

This paper evaluates the risks and vulnerabilities of the German financial system and reviews both the German regulatory and supervisory framework and implementation of the common European framework insofar as it is relevant for Germany. The country is home to two global systemically important financial institutions, Deutsche Bank AG and Allianz SE. The system is also very heterogeneous, with a range of business models and a large number of smaller banks and insurers. The regulatory landscape has changed profoundly with strengthened solvency and liquidity regulations for banks (the EU Capital Requirements Regulation and Directive IV), and the introduction of macroprudential tools.