Assessing Financial System Vulnerabilities

Recent financial crises have highlighted the potentially significant macroeconomic costs of financial system instability, and the potential for the instability in the financial system of one country to have broader implications for the stability of financial systems and macroeconomic performance in other countries. Against the backdrop of deep concerns of the international community for such potentially significant macroeconomic costs, the Fund has recently embarked on a Financial Sector Assessment Program (FSAP) in collaboration with the World Bank, and Financial System Stability Assessments (FSSAs) in the context of its Article IV surveillance of members economies.2 These assessments seek to identify, inter alia, potential vulnerabilities in financial systems that could have significant macroeconomic consequences.