Financial Sector Surveillance and the IMF

Abstract

The global financial crisis has magnified the role of Financial Sector Surveillance (FSS) in the Fund's activities. This paper surveys the various steps and initiatives through which the Fund has increasingly deepened its involvement in FSS. Overall, this process can be characterized by a preliminary stage and two main phases. The preliminary stage dates back to the 1980s and early 1990s, and was mainly related to the Fund's research and technical assistance activities within the process of monetary and financial deregulation embraced by several member countries. The first "official" phase of the Fund's involvement in FSS started in the aftermath of the Mexican crisis, and relates to the international call to include financial sector issues among the core areas of Fund surveillance. The second phase focuses on the objectives of bringing the coverage of financial sector issues "up to par" with the coverage of other traditional core areas of surveillance, and of integrating financial analysis into the Fund's analytical macroeconomic framework. By urging the Fund to give greater attention to its member countries' financial systems, the international community's response to the global crisis may mark the beginning of a new phase of FSS. This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. JEL Classification Numbers: F33

The IMF Getting what it Needs in (as) the Aftermath of the Crisis*

“…Second, the need for an incremental approach, i.e., developing structural reform or social dimension expertise can only be achieved with time. Such was the case for financial expertise, which started to develop at the end of the 90s 26 , by creating new departments and it was only brought "up-to-par" with traditional core areas of surveillance in the post crisis (see Gola andSpadofora, 2009, andMoschella 2011). In this process, it is important to enlarge the staff´s multidisciplinary background beyond macroeconomic and financial expertise, into sectoral, and even development economics and political science experts (Momani and Lanz, 2014).…”

“…The Australian G20 presidency is also trying to shift the scope of the Framework for growth from macroeconomc policies to medium-term structural issues (G20, 2014).26 Gola and Spadafora (2009) place the preliminary stages of the financial sector surveillance in the technical assitance work related to the banking crisis of the 80s.…”

You Never Give Me Your Money? Sovereign Debt Crises, Collective Action Problems, and IMF Lending

“…The Mexican crisis had a major impact also on Fund surveillance over the financial sector. SeeGola and Spadafora (2011).8 The Preferred Creditor Status (PCS) occupies an especially important place in the Fund's lending framework, as it represents a key prerequisite of all forms of Fund financing and, more generally, an element for the overall functioning of the international financial system as a whole. It allows the Fund to provide financing to a sovereign when other creditors are not willing to do so and at non-market interest rates, i.e.…”

The International Monetary Fund and Regulatory Challenges

“…This type of activity by the Fund began in a systematic way in the late 1990s in the wake of the Mexican and Asian financial crises. As described by Carlo Gola and Francesco Spadafora (2009), financial sector surveillance by the Fund has evolved with the evolution of global financial markets, albeit with somewhat of a lag. However, this evolution also has been controversial within the IMF membership.…”