The goal of stronger Bank-Fund collaboration that achieves more effective organization and deployment of resources has been widely promoted. Over the past two years, the Interim and the Development Committees have on several occasions stressed the importance of closer cooperation to help countries strengthen their financial systems and improve operational mechanisms, information sharing, and the dissemination of international standards.² The G-7 Finance Ministers have called for an increase in the "breadth and pace" of efforts of collaboration by the Bank and the Fund and with relevant national and international regulatory and supervisory bodies to increase the likelihood of early detection of weaknesses in financial systems and improve crisis response, and to improve the design and delivery of financial sector reform programs, including technical assistance, for member countries.³

In the period since September, the Committee has focused its attention on the pilot phase of the Financial Sector Assessment Program (FSAP). In this context, the primary activities have been to:

• coordinate the selection of countries for the FSAP pilot;

• develop procedures for undertaking FSAP missions on a joint basis between the Bank and the Fund and prepare a protocol for the handling of confidential information in the context of the FSAP; and

• help oversee the participation in FSAP mission teams of officials from national central banks and supervisory agencies and international standard setting bodies, particularly to assist in aspects that require specialized expertise.

Through other on-going activities, the Committee provides a forum through which to broaden the policy discussions in financial sector issues and ensure that the Bank and the Fund contribute to the various international efforts pertaining to reform of the financial sector in a coordinated way.

May 1999 marked the start of the pilot FSAP, undertaken jointly by the Bank and the Fund.⁴ The program engages governments in a discussion of strengths and vulnerabilities in their countries' financial sectors and of useful and timely ways to correct such vulnerabilities and develop their financial systems. FSAP reports feed into and help strengthen the Fund's Article IV surveillance process, including through the preparation by Fund staff of Financial System Stability Assessments (FSSAs) which are provided to the Fund's Board as part of the supporting documentation for a country's Article IV Consultation discussion. In the Bank, FSAP reports provide the foundation for the formulation of financial sector development strategies (captured in the Country Assistance Strategy and Social and Structural Review experiences), contributing to well functioning financial systems which have been shown to be important for growth (a key ingredient for poverty reduction). A detailed report on the FSAP has been provided separately to both Boards. This report focuses on the role of the FSLC in coordinating the pilot FSAP.

While the Committee is not involved in the preparation of individual country assessments or in defining the scope of assessments conducted under the FSAP, it has overseen much of the developmental work for this collaborative program. In particular, it has coordinated the selection and sequencing of countries, established procedures for joint missions, drafted standard terms of reference for the missions and fostered agreement on the types and formats of reports. The Committee has also prepared a protocol on handling confidential material in the conduct of the FSAP that draws on the two institutions' existing guidelines on the subject.

The Committee has facilitated bringing some existing activities in the Bank and the Fund, such as assessments of observance of financial sector standards and best practices, under the FSAP umbrella. Certain standards observance assessments, notably those of the Basel Core Principles and Code of Good Practices on Transparency in Monetary and Financial Policies, are core components of the FSAP.

The need for specialized expertise has necessitated the involvement of officials from national central banks and supervisory agencies as well as the active support of other international organizations and standards setting bodies, and the Committee has coordinated the participation of such experts in specific missions. In addition, the International Organization of Securities Commissions (IOSCO) and the International Association of Insurance Supervisors (IAIS) have helped to identify members of their organizations, who have joined FSAP missions. More recently, several multilateral development banks have contacted the Committee with a view to coordinating their activities in the financial sectors of their member countries with those undertaken by the Bank and the Fund in the context of the FSAP. The Committee will be looking at ways to strengthen the links between these banks and the Bank and the Fund in the future.

The scope and mandate of the FSAP require a broad range of skills related to: the analytical assessment of the sensitivity of financial institutions to macroeconomic shocks; the depth, development, and diversity of various parts of the financial system; the adequacy of legal and institutional infrastructure; the assessment of observance of standards; and the setting of clear priorities for corrective actions. The Committee has organized joint seminars on some of these issues and more are planned.

The Committee's work has fostered frequent and regular communication between Bank and Fund staff. As part of its coordinating role for the FSAP, the Committee continues a practice of holding joint meetings as needed for Bank and Fund staff to discuss issues of substance and process in the conduct of this program. The FSLC has actively maintained communications with Bank regional staff primarily through the Bank's Financial Sector Board and with Fund area departments in bilateral meetings.⁵ The Committee regularly reports on the progress in collaboration efforts, most recently and notably on the FSAP, to the Executive Directors of both institutions.

Further work program coordination

Closer collaboration between the two institutions in financial sector work will be enhanced through continuous joint work under the FSAP and sharing of information. To that end, the Committee is overseeing the development of a joint internal website for Bank-Fund staff to enable easy access to a range of financial sector resources, especially those relating to the FSAP process. This site, which should be operational in by mid-2000, will provide information on the FSAP, its procedures, and general resource materials for undertaking assessments.

The Committee also provides guidelines for staff on exchanging information on their activities in the financial sector.⁶ The Committee has encouraged the discussion within the two institutions of the balance of work in this sector between standards compliance and other forms of assessment and advice.⁷ As the FSAP covers an increasing number of countries, staff in both institutions are becoming more accustomed to cooperating on a bilateral basis in work programming, which will allow less direct involvement on the part of the FSLC.

Broadening the policy consensus

In 1999, the Committee instituted a seminar series on financial sector issues with the objective of improving the exchange of institutional knowledge and experience between the Bank and the Fund, and aiding the achievement of a consensus on specific policy issues. The seminar programs offered to date have attracted large numbers of staff who have participated actively in the sessions.⁸

The Committee intends to continue to:

• oversee the completion of the pilot phase of the FSAP and, subject to the support of the two Boards to continue the program, facilitate its continuation;

• develop systems to ensure that the operational knowledge gained during FSAP missions informs future work;

• oversee the further development of the FSAP, with a view to ensuring that it feeds into the other work of the two institutions in the most effective way;

• assist staff in the handling of confidential information;

• strive for a systematic and on-going exchange of information among staff in the Bank and the Fund on work programs in the financial sector, document publication schedules, data and analysis available from external sources and contact lists of staff;⁹ and

• continue to distribute the minutes of its meetings to all regional, area department and financial sector staff.The Committee will canvas staff on topics for seminars and other meetings intended for all staff working on financial sector issues.

Collaboration between the staffs of the Bank and the Fund working on financial sector issues has strengthened through the various initiatives undertaken by the FSLC, but especially in the context of the joint FSAP. By and large, the FSLC considers cooperation in the financial sector work of the Bank and the Fund to be constructive and successful. The Committee intends to continue its efforts to promote ever closer coordination of financial sector work in the coming period. The next report on the Committee's activities will be provided in one year.