Australia, along with the 24 other major economies around the world, will undergo a major financial stability check every five years by the International Monetary Fund (IMF).
The Fund announced the move in a statement in Washington.
The Fund said it had selected the 25 major economies with financial sectors that have the greatest impact on global financial stability to go through the in-depth mandatory financial stability checks.
The 25 economies include: (In alphabetical order): Australia, Austria, Belgium, Brazil, Canada, China, France, Germany, Hong Kong SAR, Italy, Japan, India, Ireland, Luxembourg, Mexico, the Netherlands, Russia, Singapore, South Korea, Spain, Sweden, Switzerland, Turkey, the United Kingdom, and the United States.
“Each country on this list will have a mandatory financial stability assessment every five years.
"Countries may undergo more frequent assessments, if appropriate, on a voluntary basis, according to the Fund.
"This group of countries covers almost 90 percent of the global financial system and 80 percent of global economic activity.
"It includes 15 of the Group of 20 member countries, and a majority of members of the Financial Stability Board, which has been working with the IMF on monitoring compliance with international banking regulations and standards," the IMF said in a statement.
The Executive Board of the IMF had approved making financial stability assessments under the Financial Sector Assessment Program (FSAP) a regular and mandatory part of the Fund’s surveillance for members with systematically important financial sectors, according to the statement.
"The decision adopted on September 21 this year to raise the profile of financial stability assessments under the FSAP for members with systematically important financial sectors is a recognition of the central role of financial systems in the domestic economy of its members, as well as in the overall stability of the global economy," said the statement.
The 187-nation members of the fund already undergo an annual economic health check, known as an Article IV consultation.
"In addition, the FSAP offers the opportunity to all member countries to undergo, on a voluntary basis, a comprehensive financial sector assessment.
"More than three-quarters of the Fund’s membership have so far volunteered for FSAPs.
(Australia underwent a check in 2006 and passed, with only recommendations made concerning the stress testing of our banks and the level of funding rollover risk, which was exposed in late 2008 after the downturn caused by the Lehman Brothers collapse.
The IMF said all the FSAPs include an in-depth assessment of financial stability done by the Fund.
"Financial stability assessments examine the soundness of the banking and other financial sectors; conduct stress tests; evaluate the quality of bank, insurance, and financial market supervision against accepted international standards; and assess the ability of supervisors, policymakers, and financial safety nets to respond effectively in case of systemic stress.
"While these financial stability assessments do not evaluate the health of individual financial institutions and cannot predict or prevent financial crises, they identify the main vulnerabilities that could trigger one.
• Financial development assessments examine the quality of the legal framework and of financial infrastructure, such as the payments and settlements system; identify obstacles to the competitiveness and efficiency of the sector; and examine its contribution to economic growth and development.
"Issues related to access to banking services and the development of domestic capital markets are particularly important in low-income countries."
The Fund said the review of a country’s financial stability would cover three core elements.
- Risk the source, probability, and potential impact of the main risks to financial stability
- Policies the country’s financial stability policy framework
- Crisis resolution the authorities’ capacity to manage and resolve a financial crisis.
