Unlike price stability, financial stability has neither an established definition nor an aggregate indicator that the central bank can use as a measure of financial instability. Statistics on the Financial Soundness Indicators are a new body of economic statistics that takes into consideration the aggregate impact of different factors and. What is financial system stability? What are financial soundness indicators? Practical issue: Choosing FSI peer groups; Risks assessed with FSIs; Links between.


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At the same time, the alignment of some indicators with the Basel III concepts is consistent with the effort by the international regulatory community, including by the Institute, to promote a consistent implementation of the new standards. The important role of FSIs in assessing financial sector risks The excellent work done financial stability indicators the IMF in revising the FSIs has made them more effective in assessing financial sector risks as well as in pointing out issues that are of concern to financial sector supervisors.

Allow me to illustrate this by referring to the most relevant medium-term risks for financial stability worldwide. Undoubtedly, banks now generally have higher and better-quality capital levels, and more robust funding and liquidity profiles.


However, financial institutions in several advanced economies are experiencing weak profitability. This is a financial stability indicators because low margins undermine banks' capacity to sustain capital levels during adverse economic conditions, reduce their incentives to properly evaluate assets and dampen their ability to support the real economy.

Financial soundness indicators - looking beyond the lessons learned from the crisis

Subdued profits in the recent past can be partly attributed to conjunctural developments, such as extremely accommodative monetary conditions and weak growth, as well as to the need to provision for large stocks of legacy problem loans. However, low profitability seems equally well rooted in more structural developments such as the secular trends pushing down nominal and real interest rates, the new more stringent regulatory framework - in both the prudential and resolution domains - financial stability indicators sharper competition from non-bank financial companies and technological firms in some areas traditionally occupied almost exclusively by banks.

This seems to suggest that there is overcapacity in the banking sectors in some parts of the world, particularly in Europe, which may eventually lead to financial stability risks. In that context, it may make sense for financial authorities to facilitate an orderly correction of that excess capacity through timely corporate financial stability indicators.

Financial stability indicators and public debt developments - ScienceDirect

In Europe, this process should ideally take the form of cross-border mergers, as a more integrated financial stability indicators market in the euro zone would potentially constitute a powerful risk-sharing mechanism that would help strengthen the functioning of monetary union.

In any event, an immediate concern for supervisors is whether banks are trying to mitigate the negative impact of low interest rates by taking up more financial stability indicators.

For example, in some advanced economies banks are increasing their exposure to higher-yielding overseas assets. However, this business strategy is being challenged by the rise in hedging and foreign funding costs. With respect to emerging market economies, high corporate leverage - often with debt instruments denominated in foreign currencies - remains a concern.

This has already resulted in a worsening debt service capacity of corporates in some economies, with commodity-related firms among the most vulnerable.

In addition, the concentration of corporate debt in a few firms is a matter of concern in several jurisdictions.

Financial Soundness Indicators

For example, the top 10 companies account for a majority of the financial stability indicators corporate debt stock of most Latin American economies. The survey focused on supervisory priorities and challenges in 73 jurisdictions.

I believe that almost all of these risks and challenges can be assessed either directly or indirectly by the use of FSIs, with the newly introduced FSIs playing a particularly important role.

Let me mention financial stability indicators of them: Moreover, asset quality can be examined by indicators such as the NPL ratios and the provisioning coverage ratio.

In addition, the impact of a low interest rate environment on profitability is reflected in the ratio of interest margins to gross income.

Financial stability indicators, the overseas expansion and foreign currency exposure of banks can be assessed by geographical distribution and currency-related exposure indicators.


Finally, for the corporate sector, leverage and debt service capacity can be derived from relevant FSIs, including the newly introduced ratio of earnings to interest expense for non-financial corporations NFCs.

And, for commodity-exporting jurisdictions, the profitability indicators of their NFCs including the new measure of returns on assets will reflect commodity price volatility. It could financial stability indicators argued, though, that some structural factors affecting bank profitability could be better represented in the set of FSIs.

  • Financial Soundness Indicators : Compilation Guide
  • Financial soundness indicators - looking beyond the lessons learned from the crisis
  • Financial Soundness Indicators and the IMF
  • Related information

For instance, potential overcapacity and the scope for further consolidation could be illuminated by indicators of concentration in the banking industry.

In addition, an indicator of debt concentration across firms might provide a good measure financial stability indicators the possible pockets of vulnerability in the corporate sector.

The FSIs already include indicators of credit growth to the private sector and of the sectoral distribution of lending, but these would not be sufficient to assess and monitor debt concentration in the affected economies.

Manuals & Guides

Financial soundness indicators are indicators of the current financial health and soundness of the financial institutions in a country, as well as of their as well as of their counterparts from the non-financial corporations sector and households sector. Data contain information on the core indicators for deposit-taking corporations sector banksmeasured in terms of capital adequacy, asset quality, profitability, liquidity, sensitivity to market risk and encouraged financial soundness indicators, as well as input data required for their compilation.

As such, FSI users are advised to consult the accompanying metadata to better understand cross-country comparisons or to assess the evolution of a given FSI for any financial stability indicators the reporters.

Financial Soundness Indicators Compilation Guide The primary purpose of the Guide is to provide information and advice on the concepts and definitions as well as on data sources and techniques, for the compilation and dissemination of the list of core and encouraged Financial stability indicators Table 1.