IMF Financial Sector Assessment Program

The Financial Sector Assessment Program (FSAP) was launched in 1999 by the International Monetary Fund and the World Bank in response to the Asian financial crisis of 1997–98, which exposed how weakly supervised banking systems could trigger cascading macroeconomic damage. The program provides a comprehensive, periodic examination of a country's financial sector, combining stability analysis (the IMF's lead) with developmental analysis (the World Bank's lead, except in advanced economies where the IMF runs the exercise alone).

A typical FSAP covers three pillars:

• Source of risk: stress tests of banks, insurers, and sometimes non-bank financial institutions against macro-financial shocks.
• Regulatory and supervisory quality: assessment against international standards such as the Basel Core Principles for Effective Banking Supervision, IOSCO principles for securities regulation, and IAIS insurance core principles.
• Crisis management and safety nets: review of deposit insurance, resolution regimes, and central bank lender-of-last-resort frameworks.

Findings are summarized in a Financial System Stability Assessment (FSSA), which is presented to the IMF Executive Board and incorporated into Article IV surveillance. The World Bank counterpart for emerging and developing economies is the Financial Sector Assessment (FSA).

Since 2010, FSAPs have been mandatory every five years for jurisdictions with systemically important financial sectors. The current list includes 29 jurisdictions (expanded from the original 25 in 2013), among them the United States, China, the United Kingdom, Japan, Germany, and the euro area as a whole. Other members participate voluntarily, typically on a 5–10 year cycle.

The program has been credited with flagging vulnerabilities ahead of stress events, though critics note that pre-2008 FSAPs for several advanced economies, including the United States and Iceland, underestimated risks from securitization and wholesale funding. The IMF revised stress-testing methodologies after 2009 and again following the 2014 review.