FSAP, Financial Sector Assessment Program

Standard

 

Hello our readers.

 

Have you heard of ‘FASP’, Financial Sector Assessment Program? This program is required assessment for the members of IMF and WB. It examines whether a member country maintains stability in financial system in accordance with international standard of financial regulation and supervision. Assessment criteria are including; risk factors (short-term macro financial risk), policy effectiveness (framework for financial stability policy), and risk management capabilities.

 

25 member countries, considered financially influential, are required to take this assessment program, and Korea is ranked 19th among the members. So, for this year, seven countries are being assessed, including Korea, Hong Kong, Singapore, Canada, Switzerland, Italy, and Argentina.

 

Why was FSAP implemented? It was globally implemented in May, 1999 with the joint cooperation between IMF and WB. It was widely acknowledged that financial soundness should be monitored to maintain macroeconomic stability in the international financial system.

 

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Through FSAP, member countries’ financial vulnerabilities are assessed beforehand. Pre-emptive measures are recommended, if needed. How does FSAP assess a member country? The assessment program is composed of two parts;

 

1)   ROSC (Report on Observance of Standards and Codes)

  • Policies on currency and finance
  • Payment method system
  • Financial Regulation

2)   Macro-prudential Analysis 

  • MPIs (Macro-prudential Index)
  • Qualitative assessment including stress test

 

ROSC examines how a member country abides by the international standard, while Macro-prudential Analysis evaluates an extent of financial vulnerabilities to external shocks in macroeconomics.

 

From this April to September, there will be a series of assessments to evaluate Korean financial system. A final report will be submitted to the boards of IMF and WB during October and November. For all of these procedures to be arranged, the FSAP assessment team made a trip to Korea last week, from 4th to 7th of February.

 

As FSAP is an influential indicator over sovereign credit rating, FSC has been jointly working with related entities such as Bank of Korea, Ministry of Strategy and Finance, Financial Supervisory Service, and Korea Deposit Insurance Corporation. For each assessment criterion, FSC will carry on self-examination to check up whether there is any unsatisfactory element.

 

‘Test’ or ‘Assessment’ does not sound relaxing, but somehow scary. However, this is a requirement to take a leap towards another step. Also, it is a good chance to reflect what has been done so far. With a thorough preparation in advance, FSC expects to receive a good evaluation! 

 

Regards,
Frank

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