The financial system is central to the economy. Banks provide essential money transmission services and they also mediate between savers and borrowers. They channel funds to small and medium-sized enterprises (SMEs) andthcpersonal sector which, without the intermediation of organisations able to process credit applications and assess the risk, could not obtain credit from the financial system. Even in markets such as the USA, where the securitisation of credit card and mortgage debt has become the norm, the banks carry out the original processing and packaging.
International Financial Stability Policy
Many of the goals of domestic financial stability policy have parallels at the international level. Indeed many initiatives outlined are in fact international although applied at the domestic level. But international organisations also have an important financial stability policy role in their own right and have intervened in many of the areas set out above. In the wake of the significant number of sovereign crises that have occurred in the last decade - Mexico in 1994/5, Russia in 1998, Asia in 1997/98, Brazil in 1998 and more recently Turkey and Argentina - the authorities, largely working through the IMF (in which the UK is one of the largest shareholders) have taken a number of steps to try to improve market discipline in respect of lending to sovereigns by increasing the amount of information available about the financial position of sovereign countries. The Special Data Dissemination Standard (SDDS) was established to encourage countries that have, or that might seek, access to international capital markets to provide a standard set of macrocconomic and financial data to the public. So far 53 countries have subscribed to this standard.
In addition to its efforts to enhance market discipline through the SDDS, the IMF, acting in close coordination with the World Bank, has endorsed a number of other standards that aim to improve countries' capacity to avoid costly financial crises: some of these are aimed at improving the transparency of the fiscal, monetary and financial policy-making frameworks, some at improving the quality of financial supervision and regulation and others at enhancing the integrity of markets. Among the latter are the Financial Action Task Force (FATF) recommendations in respect of combating money laundering and the financing of terrorism.
The IMF and World Bank have an ambitious programme to conduct assessments of the extent to which countries comply with these key standards, and, if the countries agree, the assessments are posted on the IMF and World Bank websites as Reports on the Observance of Standards and Codes (ROSCs). The Fund and World Bank also provide technical assistance to help countries rectify any scries weaknesses identified by these assessments. ROSCs in respect of the financial regulation and market integrity standards are often conducted within the wider compass of a FSAP. FSAPs attempt to assess the overall strength of countries' financial systems and make recommendations as to how their robustness can be improved.
The IMF has also made considerable efforts to improve the quality of its surveillance - for example the development ...