Country Reports
2024
August 1, 2024
Spain: Financial Sector Assessment Program-Technical Note on Cyber Risk and Financial Stability
Description: This paper explores a technical note on cyber risk and financial stability as part of Financial Sector Assessment Program (FSAP) in Spain. Technology risk and cyber resilience of the financial sector has become a focus area of the authorities, within the broader context of operational risk and resilience. This intensified focus by authorities is timely and important from the perspective of the continuity of financial service provision and the stability of the Spanish financial system. The FSAP found cyber risk supervisory practices of the authorities with regard to less significant institutions and financial market infrastructures in scope to be materially in line with applicable regulations and guidance and prevailing international good practice. Resource constraints are the most prominent challenge that the authorities are confronted with. A number of further weaknesses have a negative impact notwithstanding the overall strength of cyber risk supervision.
August 1, 2024
Spain: Financial Sector Assessment Program-Technical Note on Financial Safety Net and Crisis Management
Description: This paper examines a technical note on financial safety net and crisis management as part of Financial Sector Assessment Program in Spain. Spanish authorities have made good progress in establishing an effective crisis management and resolution regime. The Spanish authorities should integrate bank resolution authority for planning and execution in one institution. Integration would ensure that the national resolution authority responsible for implementing orderly resolution actions has control over the primary levers necessary to achieve its objectives. The Spanish authorities need to establish a framework for addressing liquidity needs in resolution. Spanish authorities should continue to enhance cross-authority crisis coordination arrangements. This should include formalizing its existing crisis management practices and prioritizing by agreeing a cross-authority crisis simulation exercise strategy. Spain’s Executive Resolution Authority should also have the flexibility, where possible, under national procurement legislation to depart from procurement rules in a crisis scenario to appoint external advisory support including independent valuers at short notice.
August 1, 2024
Spain: Financial Sector Assessment Program-Technical Note on Systemic Risk Analysis
Description: This paper focuses on a technical note on systemic risk analysis as part of Financial Sector Assessment Program (FSAP) in Spain. Spain’s economy and its well-developed, bank-dominated financial system have shown resilience through the pandemic, rising global geo-political tensions and tighter financial conditions. The Spanish banking sector has a global imprint, operates a traditional business model, and is strongly profitable. Downside risks are prominent and existing vulnerabilities could amplify the impact of exogenous shocks on financial stability. The Spanish banking and real sectors’ resilience was assessed against a severe but plausible adverse scenario that reflects these risks. The FSAP analysis suggests a moderate rise in the debt-at-risk of the nonfinancial corporates sector in the adverse scenario. Liquidity stress tests show that Significant banking institutions can cope comfortably with market valuation shocks and would face cash flow challenges under large withdrawals of retail deposits. Interconnectedness analysis does not reveal significant vulnerabilities of Spanish banks to of cross-border contagion of foreign banking distress.
August 1, 2024
Spain: Financial Sector Assessment Program-Technical Note on Macroprudential Policy Framework and Tools
Description: This paper discusses a technical note on macroprudential policy framework and tools as part of Financial Sector Assessment Program in Spain. The macroprudential policy framework in Spain has been significantly reinforced in recent years. While Macroprudential Authority Financial Stability Council (AMCESFI) has successfully strengthened high-level coordination, and bolstered the institutional framework supporting financial stability, there is scope to reinforce the framework further. The role, credibility, transparency, and accountability of the new authority would be strengthened by more frequent meetings and enhanced communication. Active consideration of the case for adding external expert members to the AMCESFI Council is recommended. Systemic risk identification in Spain uses advanced methods and approaches. The policy toolkit available to the Spanish authorities is broad by international standards. The introduction of a positive neutral countercyclical capital buffer for credit institutions in Spain is recommended. The current neutral macroprudential policy stance is appropriate.
August 1, 2024
Spain: Financial Sector Assessment Program-Technical Note on Regulation and Supervision of Less Significant Institutions
Description: This paper presents a technical note on regulation and supervision of less significant institutions (LSI) as part of Financial Sector Assessment Program in Spain. The Banco de España’s (BdE) extensive efforts to improve corporate governance of cooperative LSIs are commendable, and in this context, it is recommended that work continue with additional focus on onsite activities. The BdE should further increase its supervisory scrutiny of LSIs’ management of liquidity risk and interest rate risk in the banking book (IRRBB), building on its existing monitoring of LSIs’ capital and liquidity levels and exposures to IRRBB. The extensive regulatory requirements and supervisory activities of LSIs’ credit risk have been instrumental to cover this key priority, but reform is needed to enhance the related-parties framework and address gaps relative to international standards. The BdE’s joint work with Sepblac should be an opportunity to enhance the risk-based aspects of oversight of anti-money laundering and countering the financing of terrorism (AML/CFT).
August 1, 2024
Spain: Financial Sector Assessment Program-Technical Note on Regulation, Supervision, Oversight, and Crisis Management of Financial Market Infrastructures
Description: This paper presents a technical note on regulation, supervision, oversight, and crisis management of financial market infrastructures in Spain. The Comisión Nacional del Mercado de Valores (CNMV) lacks, and should be provided, full autonomy over its recruitment of staff, including in key specialist areas. The CNMV’s effective cooperation with the Banco de España (BdE) and authorities from other jurisdictions to ensure adequate supervision of Bolsas y Mercados Españoles Clearing (BMEC) and Iberclear (IC) could be further strengthened by formalizing current arrangements with the BdE. The Financial Sector Assessment Program (FSAP) identified some enhancements to the supervision of margin practices that would make it even more robust. The CNMV should ensure that its recommendations to BMEC are implemented in timely fashion and, to the extent possible, that improvements made in one segment also benefit the others. The FSAP recommends strengthening of some aspects of IC’s recovery plan.
August 1, 2024
Spain: Financial Sector Assessment Program-Technical Note on Fintech Developments and Oversight
Description: This paper presents a technical note on fintech developments and oversight as part of Financial Sector Assessment Program (FSAP) in Spain. The scope of this assessment covered fintech developments in Spain, including digitalization of the banking sector, and the supervisory oversight of fintech activity. This technical note covers the impact of fintech on regulated firms, mainly banks; the interaction between new market entrants and existing firms; the approach toward industry monitoring; and the institutional arrangements for regulation and supervision of fintech, including overall supervisory cooperation. Banks play a dominant role in Spain’s fintech landscape. A better balance between the benefits of the sandbox and its significant supervisory costs could be achieved by considering some targeted changes to its operational arrangements. The FSAP recommends granting full autonomy to the Comisión Nacional del Mercado de Valores (CNMV), which it currently lacks, over its recruitment process and ensuring alignment of resources at the Banco de España and CNMV to current and expected workloads.
July 31, 2024
Singapore: Selected Issues
Description: This Selected Issues paper estimates the exchange pass-through to inflation in Singapore with a particular focus on the role of labor market conditions. The paper first finds a strong exchange rate pass-through to inflation in Singapore, after accounting for the potential endogeneity of changes in the exchange rate. Further, it uncovers that labor market tightness dampens exchange rate pass-through and therefore could weaken monetary policy transmission. Overall, the results suggest that monetary policy should be more vigilant under a tight labor market condition. Under tight market conditions, the pass-through is found to be severely weakened and more so for the service components of the consumer price index basket. Overall, our findings suggest that the exchange rate-based monetary policy serves Singapore well, but it would need to be more vigilant when the labor market is tight. The paper then draws policy implications for taming inflation under tight labor market conditions. Further, policies designed to ease structural labor market tightness could help support monetary policy to ensure price stability in Singapore. This is consistent with a recent study on the US that suggests that dealing with the inflationary pressures originating from a tight labor market would require policy actions that bring labor demand and supply into a better balance.
July 31, 2024
Singapore: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Singapore
Description: The 2024 Article IV Consultation with Singapore highlights that following a slowdown in 2023, growth is projected to recover gradually to 2.1 percent in 2024. After reaching 6.1 percent in 2022, inflation has steadily declined to 2.7 percent in April 2024. The pace of disinflation has nonetheless been gradual, with signs of persistent price pressures including from a tight labor market. With risks to global growth now broadly balanced, downside risks to growth outlook have diminished relative to last year, but Singapore remains vulnerable to a deepening of geo-economic fragmentation. Inflation risks remain tilted to the upside. The broadly neutral fiscal stance relative to 2023 will complement the tight monetary policy stance in achieving price stability, while targeted support to vulnerable households and firms will provide temporary relief from high costs of living and business. Singapore’s financial sector remains resilient with solid capital and liquidity buffers, though vigilance against pockets of vulnerabilities is warranted, including from potential systemic risks arising from the housing market. In this context, the tight macroprudential policy stance remains appropriate.
July 31, 2024
Suriname: Sixth Review Under the Extended Arrangement Under the Extended Fund Facility-Press Release; Staff Report; and Statement by the Executive Director for Suriname
Description: This paper presents Suriname’s Sixth Review under the Extended Arrangement under the Extended Fund Facility. The authorities’ strong policy and efforts to stabilize the economy are yielding positive results: the economy is growing, inflation is on a steady downward trend, and investor confidence is returning. Suriname is implementing an ambitious economic reform agenda aimed at restoring fiscal and debt sustainability through fiscal consolidation and debt restructuring, protecting the vulnerable by expanding social protection, upgrading the monetary and exchange rate policy framework, addressing banking sector vulnerabilities, and advancing the anti-corruption and governance agenda. Monetary policy is supporting disinflation. The authorities’ demonstrated commitment to flexible, market-determined exchange rate is supporting international reserves accumulation. Finalization of the central bank recapitalization plan will help further strengthen its operational independence and financial autonomy. Building on the progress made thus far under the program, continued efforts are needed to entrench fiscal discipline, while protecting the poor and vulnerable, and further strengthen institutions and address governance weaknesses.