Sovereign Risk and Asset and Liability Management—Conceptual Issues

Country practices towards managing financial risks on a sovereign balance sheet continue to evolve. Each crisis period, and its legacy on sovereign balance sheets, reaffirms the need for strengthening financial risk management. This paper discusses some salient features embedded in the current generation of sovereign asset and liability management (SALM) approaches, including objectives, definitions of relevant assets and liabilities, and methodologies used in obtaining optimal SALM outcomes. These elements are used in developing an analytical SALM framework which could become an operational instrument in formulating asset management and debtor liability management strategies at the sovereign level. From a portfolio perspective, the SALM approach could help detect direct and derived sovereign risk exposures. It allows analyzing the financial characteristics of the balance sheet, identifying sources of costs and risks, and quantifying the correlations among these sources of risk. The paper also outlines institutional requirements in implementing an SALM framework and seeks to lay the ground for further policy and analytical work on this topi

Insurance and Issues in Financial Soundness

This paper explores insurance as a source of financial system vulnerability. It provides a brief overview of the insurance industry and reviews the risks it faces, as well as several recent failures of insurance companies that had systemic implications. Assimilation of banking-type activities by life insurers appears to be the key systemic vulnerability. Building on this experience and the experience gained under the FSAP, the paper proposes key indicators that should be compiled and used for surveillance of financial soundness of insurance companies and the insurance sector as a whole.Financial stability;Financial soundness indicators;insurance companies, life insurers, life insurance, insurance industry, reinsurance, life insurance companies, non-life insurance, policyholders, underwriting, market risk, credit risk, insurance supervisors, financial reinsurance, liability insurance, life insurer, capital markets, loss ratio, contractual savings, life insurance company, risk management, insurance products, risk transfer, casualty insurance, pension funds, insurance supervision, risk profiles, insurance commissioners, arbitrage, life insurance products, insurance statistics, life insurance industry, insurance risk, banking crises, reinsurance contracts, risk mitigation, reinsurance contract, captive insurance, commissioners, insurance markets, workers compensation, deposit insurance, actuarial assumptions, primary insurer, solvency supervision, general insurance, financial systems, insurance regulation, facultative reinsurance, insurance contracts, social security, ceding commission, capital gains, investment products, capital requirements, catastrophes, accounting rules, risk diversification, conventional insurance, life insurance policy, pension funding, private insurance, social security programs, insurance claims, regulatory approaches, risk transfer arrangements, risk modeling, product liability, regulatory agencies, insured events, risk assessment, derivative markets, risk profile, contingent liabilities, proportional reinsurance, professional liability, risk market, insurance reserves

Does Regulatory Governance Matter for Financial System Stability? An Empirical Analysis

This paper provides empirical evidence that the quality of regulatory governance-governance practices adopted by financial system regulators and supervisors-matters for financial system soundness. The paper constructs indices of financial system soundness and regulatory governance, based on country data collected from the Financial Sector Assessment Program (FSAP). Regression results indicate that regulatory governance has a significant influence on financial system soundness, along with variables reflecting macroeconomic conditions, the structure of the banking system, and the quality of political institutions and public sector governance. The results also indicate that good public sector governance amplifies the impact of regulatory governance on financial system soundness.Governance;Financial stability;Financial systems;Bank supervision;Economic models;financial system, banking, financial sector, banking system, financial strength, banking sector, financial institutions, financial policies, banking supervision, financial instability, capital adequacy, bank for international settlements, financial markets, banking crises, bank of canada, central banking, international standards, financial fragility, financial intermediation, financial regulation, financial market, bank of international settlements, bank performance, bank credit, asset diversification, moral hazard, international country risk guide, bank regulation, banking systems, financial liberalization, banking regulation, bank governors, banking risks, bank of indonesia, internal audit, financial regulations, prudential regulation, repressed financial systems, banking supervisors, country comparison, net interest margin, bank risk taking, bank fragility, bank failure, banking sectors, foreign exchange, bank data, financial statements, bank governance, capital adequacy ratio, bank risk, financial risk, international finance, financial structures, bank profitability, banking crisis, international financial system, bank of england, financial structure, bank policy, bank assets, bank ratings, consolidated supervision, financial services