Macroprudential indicators can play crucial role in measuring health of financial systems
| Author | Helen Chin |
| Position | IMF External Relations Department |
| Pages | 213-214 |
Page 213
Following the severe financial crises that characterized the 1990s, identifying and assessing financial sector vulnerabilities has become a key priority of the international community. The costly disruptions in global markets underscored the need to establish a set of monitorable variables that could be used to evaluate strengths and weaknesses in financial institutions and alert authorities to impending problems. These variables—indicators of financial system health and stability—are known collectively as macroprudential indicators. They are the subject of a new IMF Occasional Paper, Macroprudential Indicators of Financial System Soundness, by a staff team led by Owen Evans, Alfredo M. Leone, Mahinder Gill, and Paul Hilbers of the Monetary and Exchange Affairs Department and the Statistics Department.
Work on the paper was initially undertaken in preparation for an IMF consultative meeting on macroprudential indicators in September 1999. At that meeting, experts from central banks, supervisory agencies, international financial institutions, academia, and the private sector exchanged information and compared experiences on the use of macroprudential indicators. Work in this area, including the results of the meeting, was discussed by the IMF Executive Board in January 2000.
As part of the IMF’s broader surveillance work, the institution has been charged with evaluating the soundness and vulnerability of financial systems within the framework of its Article IV consultations with individual member countries. In this context, the IMF and the World Bank launched a joint program in May 1999 called the Financial Sector Assessment Program, which was designed to identify financial system strengths and weaknesses and help countries develop appropriate policy responses. The IMF uses the program to derive Financial Sector Stability Assessments that focus on the aspects of the financial system that are significant for macroeconomic performance and policies. The program seeks to identify vulnerabilities early on and develop prompt responses, thus averting costly crises. These reports are presented to the IMF’s Executive Board for discussion within the context of Article IV surveillance. At the World Bank, the program becomes the basis for formulating development strategies for the...
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