Strategic Focus Areas | Pillar 1
Strengthening Financial Sector Resiliency
Objective
Increased access and usage of suitable, safe, sustainable, and affordable services for individuals.
Overview
Financial system resilience is vital for sustainable growth and economic stability. F4D aids countries in building strong, transparent, and internationally compliant financial systems. This includes crisis prevention, policy development for critical financial functions, and adoption of best practices with technology for effective supervision.
Priority Areas
Banking Regulation and Supervision: Assisting governments in enhancing financial sector regulations, managing risks, and using modern technologies. This includes developing policies for financial technology and supervisory technology.
Resolution and Crisis Management: Guiding countries in creating transparent, time-bound, regulatory responses for crisis management, updating recovery plans, and ensuring responses do not worsen crises.
Greening the Financial Sector: Strengthening financial sectors against environmental risks and facilitating capital mobilization for climate objectives. This involves climate stress testing, green banking strategies, and regulatory adjustments, in collaboration with global networks.
Financial Integrity: Providing tools for financial transparency and anti-money laundering/countering terrorism financing to combat illicit activities. This includes developing legal frameworks and riskbased supervision systems.
To reflect the growing demand and urgency, F4D grants focus on comprehensive policy actions required to foster macroeconomic and financial stability both at the global and national levels.
F4D’s support under Pillar I:
Development of diagnostic tools for financial systems;
Technical assistance in financial oversight, crisis management, and non-performing asset resolution;
Guidance on regulating fintech institutions and digital instruments; and
Tools and assistance for anti-money laundering and combating terrorism financing.
Central banks and regulators are increasingly addressing climate change and environmental risks by incorporating these factors into their supervisory methods. F4D supports this by helping countries integrate these risks into financial regulations, including climate stress-testing and green banking strategies.
Additionally, as financial sectors evolve with fintech and digital advancements, F4D is focusing on managing the risks associated with digital technology adoption and updating regulatory frameworks to keep pace with technological changes.
F4D’s Pillar I active portfolio includes five country-level projects across East Asia and the Pacific, South Asia, Latin America and the Caribbean, and Africa, plus two global knowledge initiatives.
In Pakistan, for example, the financial sector faces stability risks due to banks’ sizable exposure to government debt amid a challenging macroeconomic environment. The Strengthening Financial Sector Stability and Resilience grant aims to improve the financial sector safety net, enhancing the authorities’ ability to monitor and respond to financial instability. This includes work with the State Bank of Pakistan and the Deposit Protection Corporation to improve early intervention, bank resolution, deposit insurance, emergency liquidity assistance, as well as climate stress-testing.
IN FOCUS: Rethinking the Role of the State in the FinanciaI Sector
The global financial crisis resulted in renewed interest in the role of state-owned financial institutions (SOFIs), and especially public banks. They remain systemically important in lower- and middle- income countries and are key players in local and international capital markets.
The old debate over whether state ownership is good or bad for financial stability and development has given way to new, more practical discussions on how public banks can better address market failures and sustainability and improve their governance and management (for a recent discussion see this blog). There are also attempts to make state ownership more dynamic, and to create new ownership arrangements that are designed to achieve better social and commercial results. Public banks are also becoming key actors in mobilizing climate-related investments.
For the World Bank to enhance consistency in its approach to support public banks, F4D has kicked off the analytical work to generate more granular and comparable data on public banks, improve diagnostic tools, and build consensus on a common approach to public banks' reforms.
F4D's newly approved SOFIs: Stability, Sustainability and Inclusion Project aims to generate knowledge to inform the World Bank advisory and lending project design including benchmarking for client countries seeking to reform their SOFIs and development finance institutions.
Activities include developing a green module for public banks and a supporting diagnostic tool set, updating the Role of the State Technical Note under the Financial Sector Assessment Program (FSAP) to enhance the way the World Bank assesses public banks, and a database with a set of indicators to identify the magnitude of the state in the banking sector, and to cross-compare practices and trends. To complement these activities, a position paper will be produced to offer guidance for policymakers and the World Bank teams on the application of international good practice to the public banks.
In Ukraine, F4D is focused on advancing the use of Supervisory Technology (Suptech) to make better informed supervisory decisions and enhance riskbased supervision. Technical assistance is being provided to the National Bank of Ukraine to support identification of necessary Suptech solutions, including detailed descriptions of various functionalities and utilization methods for existing resources. Consultation on procurement and implementation of new applications and screening of potential partners will be provided to ensure independent quality assurance of project deliverables.
In Chile, work has begun with the Financial Market Commission on exploring the benefits of adopting advanced technology, such as artificial intelligence and natural language processing, to increase the efficiency of consumer complaints processing and market conduct supervision. This involves providing technical assistance for designing solutions to enhance the Commission’s efficiency in managing consumer complaints and ensuring integration with the existing information technology architecture. Analysis of available resources at technical and operational levels is being carried out to identify the obstacles and bottlenecks. The team carried out an assessment on technical impediments for stakeholders, including financial institutions, to identify adequate technology adoption.
In Indonesia, F4D is supporting the government to strengthen the riskbased financial sector, retail payments, and market conduct supervision through Regulatory Technology (Regtech) and Suptech. The team delivered a report which is expected to enhance Big Data Analytics in capital market supervision and is now developing use-cases for securities company segmentation and market-driven analysis.
DID YOU KNOW? Demystifying Suptech
Effective supervision of financial institutions is crucial to promote the health and soundness of a financial market. The complexity of the financial system is increasing as the digital era generates a vast amount of data and new innovative financial products enter the market. As a result, many supervisory authorities are turning to technology-driven solutions (Suptech) to improve efficiency and effectiveness.
Suptech offers significant opportunities to revolutionize supervision by using advanced technology and abundant data. It helps authorities move toward risk-based supervision and proactive measures, promoting financial stability and trust in the financial sector.
Recently, there has been growing interest in Suptech. Authorities are eager to understand how Suptech adoption could benefit them, but awareness of its potential and challenges remains limited. This lack of understanding often hinders the initiation of Suptech projects.
F4D aims to bridge this knowledge gap among supervisory authorities by raising awareness and assisting in creating tailored, sustainable Suptech adoption strategies.