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International Monetary Fund. Monetary and Capital Markets Department
COVID-19 pandemic: The Financial Sector Assessment Program (FSAP) work was conducted prior to the COVID-19 pandemic, so this Technical Note (TN) does not assess the impact of the crisis or the recent crisis-related policy measures. Nonetheless, given the FSAP’s focus on vulnerabilities and policy frameworks, the findings and recommendations of the TN remain pertinent. While Denmark’s institutional arrangements are uncommon, the authorities have undertaken several macroprudential measures since the last FSAP. The Minister for Industry, Business and Financial Affairs (MIBFA) has decision-making power over most macroprudential tools in Denmark, which is rare in international practice. However, the Systemic Risk Council (SRC), which includes members from the Danmarks Nationalbank (DN) and Danish Financial Supervisory Authority (DFSA) plays an advisory role and has powers to give recommendations with a comply or explain mechanism. In recent years, the authorities have taken wide-ranging macroprudential policy actions in response to growing systemic vulnerabilities, which have seemed to slow down some of the riskier trends. More recently, in response to the Covid-19 crisis, countercyclical capital buffer (CCyB) has been fully released.
International Monetary Fund. Monetary and Capital Markets Department

decision-making. Procedurally, the secretariat starts working on draft recommendations only after receiving a mandate from the SRC, which often follows a phase of consensus building within SRC meetings. This has led to delayed action in some cases. Second, limited powers of the SRC can also lead to inaction bias in cases where MIBFA does not comply with its recommendations. This has happened, particularly regarding risks related to deferred amortization loans in the household sector. To strengthen the framework, the SRC chair should be given the ability, enshrined in law

International Monetary Fund. Monetary and Capital Markets Department

-financial feedback loops; and (iii) building on the interconnectedness work, particularly given centrality of covered bonds in the system. 40. The macroprudential policy formulation in Denmark would benefit from a more streamlined decision-making process and an expansion of the policy toolkit . In particular: Give the SRC chair the ability, enshrined in law, to make proposals for a recommendation—after due consultation with other SRC members—without the need to strive for consensus. This would limit the consensus building phase before the secretariat starts working on draft

International Monetary Fund. Monetary and Capital Markets Department
Much of the work of the Financial Sector Assessment Program (FSAP) was conducted prior to the COVID-19 pandemic. Given the FSAP’s focus on medium-term challenges and vulnerabilities, however, many of its findings and recommendations for strengthening policy and institutional frameworks remain pertinent. This report reflects key developments and policy changes since the FSAP mission work was completed, and includes illustrative scenarios to quantify the possible implications of the COVID-19 shock on the solvency of systemically important financial institutions (SIFIs). Prior to the COVID-19 pandemic, the Danish authorities had taken important steps to improve financial system resilience. The authorities had actively used macroprudential tools to bolster the robustness of the financial system. The supervision of the banking and insurance sectors had improved. Likewise, recent legislation has strengthened anti-money laundering and combating the financing of terrorism (AML/CFT) supervision. Major reforms such as a new bank resolution framework had also considerably improved Denmark’s financial safety net and crisis management frameworks.
International Monetary Fund. Monetary and Capital Markets Department

coordination to improve data on the activities of complex financial firms that operate across borders. The FPC also noted in its July 2021 FSR that international regulators need to develop a way to aggregate and share trade repository data in order to better analyze cross-border exposures in derivatives markets, as highlighted by the family fund default. Table 3. United Kingdom: List of International Committees Chaired by the BOE IO Committee Position FSB Standing Committee on Supervisory & Regulatory Cooperation (’SRC’) Chair

International Monetary Fund. Monetary and Capital Markets Department
The United Kingdom’s macroprudential policy framework has proven its effectiveness. After the Global Financial Crisis (GFC) of 2007–09, the United Kingdom assigned the Bank of England (BOE) a clear financial stability mandate, created a new Financial Policy Committee (FPC) to set macroprudential policy, and shifted to a “twin peaks” model of financial oversight. The 2016 Financial Sector Assessment Program (FSAP) concluded that the new framework appeared appropriate for effectively conducting macroprudential policy. However, the framework was then relatively new. The 2021 FSAP represents an opportunity to review its performance in building systemic resilience through the financial cycle, including the market volatility resulting from the Brexit vote and the COVID-19 pandemic.