Monetary and Banking Research Institute
Date:3/6/2019 8:53:48 AM   |   Code : 294270   |   View: 256

A Survey of the Financial Sector of Iran with Emphasis on FSAP Standards (2012)


Executive Summary:

The Financial Sector Assessment Program was introduced in the late 1990s in order to strengthen the financial system's supervision in the direction of the bilateral oversight of the IMF and the World Bank. The program seeks to promote efforts for financial stability and the growth of the international economy of the countries. In this way, the coordinated policy recommendations of the International Monetary Fund and the World Bank in favor of accountability and optimal use of specialized resources are supported through the FSAP program. The evaluation of the financial sector program will be used as a basic knowledge tool for prioritizing the technical assistance provided by the financial sector and the financial support of the World Bank and the International Monetary Fund. An examination of the financial system requires an analytical method and a special methodology tool, which will allow all members and participants in that program to take advantage of its experiences and provide appropriate strategies for policy makers and national planners.

Both the IMF and the World Bank will play a very active role in the process. In the context of the supervisory guidelines, the IMF encourages member states to comply with the principles and assist them in comparative assessment, either on a case by case basis or on a priority basis. During its normal activities, the World Bank encourages the applicant countries to follow the principles and will also help them to assess their regulatory frameworks in line with these principles. The World Bank and the International Monetary Fund seek to find countries that have improved their identified weaknesses in regulatory and control regimes, and on a priority basis offer them technical and educational assistance in addressing such weaknesses.

In recent years, Iran has begun evaluating its financial sector with the help of the FSAP financial appraisal program. In assessing the financial sector, there is a need for reforms in the areas of economic growth, increasing the share of credits from GDP, increasing efficiency and financial capacity. In general, the financial evaluation program is based on the following three principles:

1 Evaluation of Financial Stability and Instability Tests

2 Developing the financial market and its infrastructure

3 Assessing how international financial standards are established

In this project, based on the assessment of the banking sector and the assessment of the compliance of the Basel Committee standards in the banking system of the country, a table is provided that indicates the degree of compliance of the Basel Committee standards in the banking system of Iran.

The evaluation of the degree of compliance of the BASEL principles in Iran has been analyzed using existing laws and regulations in the country and in particular in the banking system. The laws and regulations governing the activities of the Iran’s financial markets include the money market and the capital market, and the institutional structures of these markets have not yet been fully organized. At present, mainly the monetary and banking law of Iran, Legislative Bill on the Administration of Banks, the Law of Usury-Free Banking Operations, the rules for the establishment and operation of non-bank credit institutions, and Article 44 of the Constitution supervises the activities of the banking system of the country. It is clear that the existing legal and regulatory structure does not have the necessary requirements for the proper functioning of the financial system, and it generally causes deficiencies in the performance of financial markets.

In the first chapter, the characteristics of macroeconomics and financial markets of Iran with an emphasis on the banking sector is studied. In executing the financial sector evaluation program, we need to study macroeconomic variables in each country. Variables such as economic growth, national savings, investment, government expenditures, and foreign trade are among the variables that affect the stability and performance of the financial sector. In this regard, the most important macro variables of the country and their effects on the financial markets during the period of 2001 to 2007 are studied. Also, the status of Iran’s economy in the world and in the Middle East region is evaluated with emphasis on the most important variables. Considering the assessment of the compliance rate of international standards of the Basel Committee in the banking sector of Iran, some variables of the banking system of the country are also studied in this period.

In the second chapter, the Financial Sector Assessment Program (FSAP) is evaluated and all the IMF and World Bank standards in the various financial sectors including transparency standards in monetary and financial policies, regulatory standards (Principles of Effective Banking Supervision, Fundamental Principles of Securities and Exchange, Fundamental Principles of Insurance Supervisors), and structural and institutional standards including the core principles of payment systems, are presented separately. In the second chapter, the experience of other countries in evaluating the financial sector are discussed so that using these experiences, more suitable solutions are presented for more adaptation of the principles in the country.

In the third chapter, the degree of compliance with the principles of the Basel Committee, the transparency of monetary and financial policies, as well as the pivotal principles of payment systems in Iran are studied. This research does not address the fundamentals of securities and exchange as well as the underlying principles of insurance due to problems encountered during the research.

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