Background of the IMF’s Financial Soundness Indicators (FSIs)
Financial instability could have an adverse impact on the investment behavior of corporations and heighten the volatility of economic cycles. Once a financial crisis occurs, it takes several years to recover from the damage caused. In this view, the International Monetary Fund (IMF) and World Bank launched the Financial Sector Assessment Program (FSAP) in 1999 and developed a comprehensive financial stability analytical framework. Through these efforts, the IMF helps countries under assessment to identify the strengths, vulnerabilities, and sources of risks of their financial systems, as well as the relationship between the performance of financial sectors and macroeconomics, in order to discover areas of needs for financial development and to assist them in developing appropriate policy responses. FSIs, composed of a set of financial indicators associated with financial institutions, financial markets, real estate market, corporations and households, are part of the aforementioned analytical framework and are aimed at monitoring the overall risks and vulnerabilities of financial stability.
The Contents of FSIs
In 2006, IMF issued the 2006 Financial Soundness Indicators Compilation Guide (2006 FSI Guide). The Guide includes 40 FSIs classified into the core set and the encouraged set by data importance and availability. Core set indicators include 12 financial ratios of deposit takers which are directly relevant to financial stability. These indicators, mostly from regulatory statistics, can be collected by almost all countries and are more comprehensible to the general public. Encouraged set indicators consist of 28 financial indicators in 6 categories: deposit takers, other financial corporations, nonfinancial corporations sector, households, real estate markets, and market liquidity. After the global financial crisis in 2008, the IMF sought to enhance data collection of other financial sectors and issued the 2019 Financial Soundness Indicators Compilation Guide (2019 FSI Guide). The FSIs in this Guide are composed of 53 financial indicators, which are classified into 18 in the core set and 35 in the additional set, in order to further strengthen surveillance of financial systems in the international community. Compared to the 2006 FSI Guide, the 2019 FSI Guide adds three new categories, namely money market funds, insurance corporations and pension funds.
(Please refer to https://www.imf.org/en/Data/Statistics/FSI-guide for more details.)