Review of The Institutional View on The Liberalization and Management of Capital Flows — Background Note on Assessing Systemic Financial Stability Risks Due to FX Mismatches

1. This note outlines the approach of the proposed revision to the Institutional View (IV) when assessing whether systemic financial stability risks are elevated due to foreign currency (FX) mismatches.
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Volume/Issue: Volume 2022 Issue 010
Publication date: March 2022
ISBN: 9798400206016
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Topics covered in this book

This title contains information about the following subjects. Click on a subject if you would like to see other titles with the same subjects.

Exports and Imports , Finance , Money and Monetary Policy , Political Economy , FX mismatch , background note 2 , I , assessment , FX debt , FX balance sheet mismatch , FX liquidity risk , Systemic risk , Financial statements , Systemic risk assessment , Currencies , Global

Summary

This note outlines the approach of the proposed revision to the Institutional View (IV) when assessing whether systemic financial stability risks are elevated due to foreign currency (FX) mismatches. The approach builds on the staff guidance regarding risk assessments in bilateral surveillance, while allowing for flexibility to draw on future advances in best practice. This note proposes a two-step approach to assess systemic risks from FX mismatches. This note is organized as follows. Section II outlines the sources of systemic risks stemming from FX debt and potential amplification channels. Section III outlines the risk assessment approach in practice and Section IV concludes.