IFI financial sector assessments of limited use

20 November 2009

An internal evaluation of 10 years of the joint World Bank-IMF Financial Sector Assessment Program (FSAP) has shown that it failed to reflect reality. The report states that the assessments have ignored individual institutions of systemic importance and cross-border linkages, and relied “excessively on market discipline for prudential purposes”. The report highlights that continuing resource constraints mean that assessments have to focus on systemically important countries, and that necessarily longer gaps between assessments could hamper the ability to assess financial sector vulnerabilities. Even more problematic, the voluntary nature of the programme means that countries that “might have benefited from an assessment” were not covered, a reference to the US which failed to undergo an assessment before the crisis. The evaluation also found that that prioritisation of country assessments according to systemic importance continues to be difficult. Considering the report, the IMF board did not adequately address the flaws that were exposed nit he evaluation, and after recommending a few changes highlighted their belief that the programme “enriched surveillance and policy dialogue with member countries”.