Introduction

For almost a decade, the IMF has been using stress tests to identify vulnerabilities across institutions that could undermine the stability of a country's financial system. Stress tests are typically performed as part of the Financial Sector Assessment Program (FSAP) – a joint effort by the IMF and the World Bank. Since the program's inception in 1999, the FSAP has become an essential element of the Fund's engagement on financial issues with its member countries. FSAPs have been or are being carried out for over 120 countries – two-thirds of Fund membership. FSAP re-assessments (that is, updates of the original, first assessment) are also taking place, with more than forty FSAP updates completed or underway. Some form of stress-testing has been universal in these assessments, ranging from very simple to more sophisticated exercises with associated macromodelling.

Reflecting the growing integration of financial sector work into Fund surveillance, Article IV teams have also started experimenting with stress-testing as part of regular consultations. It is very early days yet, and such exercises will probably be done on only a sub-set of countries and in a more limited fashion than what could be undertaken in an FSAP, given the broader scope of Article IV surveillance. But the direction of movement over time seems clear. It is in turn facilitated by the rapid expansion of interest in, and capacity for, macro stress-testing among the authorities in an increasingly wide range of countries.