Financial Sector Assessment:A Handbook Box 3.1 Market-Based Indicators of Financial Soundness Market-based indicators are among the key data sets p.Vesala.and Vulpes 2002) In additi n,c lly not an issu 3 independent ana ts to obtain input dat aand for the rket pr rume ts to d spread cial t market- dicators h ve a wide array o t that the ket be s and their c may be commonly watched indic of country risk adition,thee indicat institutions'securities re not nublic of shock the fina I secto or if the ir trading is limited (as may the market informa financi an ot pub (e.g.,loan c data can of the od ind ments analysis of ver,mark t-basdindic ators can premise tha arket pric titution nancial marke nd that of balan e-she ata and other dat cent studie sugest that su off and Wal tha the ).d d M h,in turn.c bout the futur narket informa including the pro and B ti(04)find that n adv using market prices rathe rating,and surveys ilable at high requency.The advanta acce They find is th ch a ng sy and Also although the based me ures of vu tings.I heir st market price da should provide ence ab the market indicators'efficiency in ing assessment te.g
40 Financial Sector Assessment: A Handbook 1 I H G F E D C B A 12 11 10 9 8 7 6 5 4 3 2 Box 3.1 Market-Based Indicators of Financial Soundness Market-based indicators are among the key data sets used by macroprudential analysis, along with aggregated prudential data, macroeconomic data, stress tests, structural data, and qualitative information. They include market prices of financial instruments, indicators of excess yields, market volatility, credit ratings, and sovereign yield spreads. The market-based indicators have a wide array of uses. In particular, market prices of financial instruments issued by financial institutions and their corporate counterparts can be used to assess financial soundness of the issuers. Sovereign yield spreads are commonly watched indicators of country risk. Market price data from the stock, bond, derivatives, real estate, and other financial markets can be used to monitor sources of shocks to the financial sector. Indicators of market price volatility can help assess the market risk environment. Finally, sovereign ratings and ratings of financial institutions and other firms (as well as the accompanying analysis by the rating companies) are important sources of information to any analysis of vulnerabilities.a Analysis of the market-based indicators complements the analysis of aggregated microprudential data. The use of market-based indicators to monitor financial institutions’ soundness is based on the premise that market prices of financial institutions’ securities could reveal information about their conditions beyond that of balance-sheet data and other aggregated microprudential data. If this premise is true, then the market-based indicators can usefully complement the FSIs, a majority of which—including all core FSIs—are based on aggregating financial institutions’ microprudential data. The key premise is that the asset prices contain information on market beliefs, which, in turn, contain information about the future. In particular, option prices reflect market beliefs about the future prices of the underlying assets. This information can be used to extract a probability distribution, including the probability of default. An advantage of using market prices rather than prudential data is that the price data are generally available at high frequency. The advantage of equity and debt data is that they are frequent, which allows for more sophisticated analysis, such as the analysis of volatility and covariance. Also, although the accounting measures of risk (such as nonperforming loans [NPLs] and loan loss reserves) are essentially backward looking, market price data should provide a forward-looking assessment (e.g., Bongini, Laeven, and Majnoni 2002; Gropp, Vesala, and Vulpes 2002). In addition, confidentiality is generally not an issue with market data, which should make it easier for independent analysts to obtain input data and for the results to be publicly shared and verified. The quality of the market-based indicators depends on the extent and quality of the financial markets. For asset prices to contain useful information, it is important that the market be robust and transparent. If it is not, then asset prices may be substantially affected by factors other than the financial health of the issuer or the underlying quality of the asset. In addition, the usefulness of market-based indicators to assess financial sector soundness may be limited if some financial institutions’ securities are not publicly traded or if their trading is limited (as may be the case, for instance, for government-owned banks or family-owned banks). Finally, if relevant information is not publicly disclosed (e.g., loan classification data that are not disclosed in some countries), but if that type of information is collected by supervisors, then prudential data can be superior to market-based indicators in measuring financial sector soundness. However, market-based indicators can still be useful in assessing the potential shocks to the financial institutions arising from or transmitted through financial markets. Empirical studies show that market prices can be helpful in forecasting bank distress. For example, recent studies for the United States suggest that subordinated yields explain not only bank rating changes but also regulatory capital ratios (Evanoff and Wall 2001), that equity prices provide useful information on bank failure (Gunther, Levonian, and Moore 2001), and that both equity prices and bond yields explain ratings (Krainer and Lopez 2003). However, early warning systems that combine market information with other data tend to perform better than the nonmodel market-based indicators. Berg and Borensztein (2004) find that “market views,” as expressed in spreads, ratings, and surveys, are not reliable crisis predictors, important as they may be in determining market access. They find that early warning system models, which combine a range of indicators, have outperformed purely market-based measures of vulnerability such as bond spreads and credit ratings. Their study was focused on predicting currency crises, but there is even less evidence about the market indicators’ efficiency in predicting banking sector crises. a. When assigning ratings, rating companies typically use a range of analytical approaches and data, including available prudential indicators. Nonetheless, ratings are classified as market-based indicators, thus recognizing that they are produced mainly for use by market participants
Chapter 3:Assessing Financial Stability significant risk ex incude the activiti of those foreig ranches and subsidi ries,even are not part of the because they area soure of isk tothe banking system. For the domestic branches and subsidiaries of foreign-controlled banks,support in a crisis can be expected to come in the first instance from their foreign owners.This type of 3 support may be based (a)on the foreign bank's legal obligation,which generally extends to branches but not to subsidiaries abroad;(b)on broader reputation or operating con- cerns,which may lead the foreign bank to support its subsidiaries abroad in a crisis:or nt banks may also A心， ation because e parent bank nce issubsidiarie also the risk o agion.Those FSI oreign-controlle deposit-takers play a significant role in the financial system,separate FSIs may need to be compiled for the local subsidiaries of those deposit-takers. Quantitative information on the structure,ownership,and degree of concentration of the financial system helps to set priorities for analyzing FSIs while also providing a basis for the identification of structural issues and developmental needs.This information indicates the relative importance of differe ent type s of fin ncial institutions (e.g..banks ecuritiescompanies,ins nce compa n funds);the relativ mp ce of dif. p(pr vate,pu blic,foreign);and the ownership provides a b understanding of the main components of the sector and it degred diversification (see chapters 2 and 4 for a further discussion of financial structure and its determinants). 3.3.1.1 Analysis of FSIs for Banking In most countries,banks form the core of the financial system and,thus,warrant close monitoring for indications of potential vulnerabilities.A range of quantitative indicators can be used to analyze the health and stability of the banking system,including financial soundness indicato narket-based indicators of financial co nditions. ral indica rs describing and tems,andm onomic indic range of tive informa on is als 1。 S. s the banking system inclu ry framework (w P0g阳即 payment system,accounting and auditing standards,the legal infrastructure,the liquidity support arrangements,and the financial sector safety nets. Banking sector FSIs discussed in chapter 2 cover capital adequacy,asset quality,man- agement soundness,eamnings and profitability,liquidity,and sensitivity to market risk.An analysis of inter-linkage s am ong those fsls and their mac onomic and institutional minants.togethe with a nt of thei shocks thre t analysis. The ages not only an t also to her variable hips within the financial sec tor and with other non-financial sectors.They also reflect institutional determinants,such as the key 41
41 Chapter 3: Assessing Financial Stability 1 I H G F E D C B A 12 11 10 9 8 7 6 5 4 3 2 significant risk exposure through their foreign branches and subsidiaries. FSIs should include the activities of those foreign branches and subsidiaries, even though the latter are not part of the domestic activity, because they are a source of risk to the banking system. For the domestic branches and subsidiaries of foreign-controlled banks, support in a crisis can be expected to come in the first instance from their foreign owners. This type of support may be based (a) on the foreign bank’s legal obligation, which generally extends to branches but not to subsidiaries abroad; (b) on broader reputation or operating concerns, which may lead the foreign bank to support its subsidiaries abroad in a crisis; or (c) both of those elements. At the same time, FSIs of the foreign parent banks may also deserve examination because the soundness of the parent bank would influence not only the potential for support to its subsidiaries but also the risk of contagion. Those FSIs are typically produced by the home country of the parent bank. When foreign-controlled deposit-takers play a significant role in the financial system, separate FSIs may need to be compiled for the local subsidiaries of those deposit-takers. Quantitative information on the structure, ownership, and degree of concentration of the financial system helps to set priorities for analyzing FSIs while also providing a basis for the identification of structural issues and developmental needs. This information indicates the relative importance of different types of financial institutions (e.g., banks, securities companies, insurance companies, pension funds); the relative importance of different types of ownership (private, public, foreign); and the concentration of ownership. It provides a basic understanding of the main components of the sector and its degree of diversification (see chapters 2 and 4 for a further discussion of financial structure and its determinants). 3.3.1.1 Analysis of FSIs for Banking7 In most countries, banks form the core of the financial system and, thus, warrant close monitoring for indications of potential vulnerabilities. A range of quantitative indicators can be used to analyze the health and stability of the banking system, including financial soundness indicators (aggregated microprudential indicators), market-based indicators of financial conditions, structural indicators describing ownership and concentration patterns, and macroeconomic indicators. A range of qualitative information is also needed to assess the banking system, including the strength of the regulatory framework (which is based on assessments of the Basel Core Principles, or BCP), the functioning of the payment system, accounting and auditing standards, the legal infrastructure, the liquidity support arrangements, and the financial sector safety nets. Banking sector FSIs discussed in chapter 2 cover capital adequacy, asset quality, management soundness, earnings and profitability, liquidity, and sensitivity to market risk. An analysis of inter-linkages among those FSIs and their macroeconomic and institutional determinants, together with an assessment of their sensitivity to various shocks through stress tests, provide the basic building blocks of financial stability analysis.8 The linkages not only among the various groups of FSIs but also to other variables are derived from accounting and lending relationships within the financial sector and with other non-financial sectors. They also reflect institutional determinants, such as the key
Financial Sector Assessment:A Handbook parameters of the prudential framework.Topics studied in this area include,for example determinants of asset quality,links between asset quality changes and capital,and deter minants of profitability,all of which are discussed below. One important topic of study involves determinants of asset quality.Asset quality is affected by the state of the business cycle,the corporate financial structure,and the level 3 of real interest rates,which,together,influence the capacity for debt servicing.Therefore, in empirical work.FSIs of asset quality are typically ssed on various explanator variables,such as co age,macr mic onditions,and interes rates.In ose types regr based el data for in a country;in othe rcases,time s a wer example o cro -country time series n,the IMF(00 )estimated the tionship betweer corporate sector FSIs and banking sector asset quality FSIs on panel data compiled from large private databases for 47 countries over 10 years.It found that a 10 percentage point increase in corporate leverage was generally associated with a 1.8 percentage point rise in NPLs relative to total loans after one year.Also,a 1 percentage point rise in GDP growth resulted in a 2.6 percentage point decline in the NPLs-to-loans ratio,reflecting the fact that fewer corporations are likely to experience problems repaying loans during rapid growth. Links bet asset chan and ris pital are also studied.A deterioration ts capital additional reserves ks ne d to hold against the litional ba assets.I the rules in the country involving loan loss provisioning and the application of those rules in banking practice.Therefore,to model this link,one needs to understand well the pruden tial and supervisory framework in the country in question,which is where the findings of the BCP assessments can be of great help.The link between asset quality (and other risk factors)and capital is typically studied in the context of stress tests (see appendix D on stress testing for references on this issue). Another important topic of study involves the determi large the etical and ants of profitability.Thereis rical lit on the bank-le el and ntry-level factor e mining bank ef This is ntitative anal sis of FS can be complemente with informa on fre m assessment of the effectiveness of financial sector supervision.BCP assessmentsprovide a vast array of contextual information that can be useful in interpreting FSIs.First,they can clarify the definition of data being used to compile FSIs by,for example,indicating the quality of capital.Second,they can help establish the underlying cause of observed movements in FSIs when there are competing explanations,such as whether a fall in the capital ratio might be supervisory action rather than rapid balance-sheet expansion.Third,they isks.such as ESI E rth the ride info on how 1 management d,thus. ective system is likel ly to respond to the risk associated with particular values for FSI the supervisory system to emerging financial sector problems,which reveals how quickly Finally,t vulnerabilities identified by FSIs are likely to be corrected.A lack of compliance with many of the BCP would suggest that the banking sector vulnerabilities detected using FSIs may be more serious than in a financial system with good compliance.Assessments
42 Financial Sector Assessment: A Handbook 1 I H G F E D C B A 12 11 10 9 8 7 6 5 4 3 2 parameters of the prudential framework. Topics studied in this area include, for example, determinants of asset quality, links between asset quality changes and capital, and determinants of profitability, all of which are discussed below. One important topic of study involves determinants of asset quality. Asset quality is affected by the state of the business cycle, the corporate financial structure, and the level of real interest rates, which, together, influence the capacity for debt servicing. Therefore, in empirical work, FSIs of asset quality are typically regressed on various explanatory variables, such as corporate leverage, macroeconomic conditions, and interest rates. In some assessments, those types of regression estimates were based on panel data for banks in a country; in other cases, time series of aggregate data were used. As an example of cross-country time series regression, the IMF (2003c) estimated the relationship between corporate sector FSIs and banking sector asset quality FSIs on panel data compiled from large private databases for 47 countries over 10 years. It found that a 10 percentage point increase in corporate leverage was generally associated with a 1.8 percentage point rise in NPLs relative to total loans after one year. Also, a 1 percentage point rise in GDP growth resulted in a 2.6 percentage point decline in the NPLs-to-loans ratio, reflecting the fact that fewer corporations are likely to experience problems repaying loans during rapid growth. Links between asset quality changes and capital are also studied. A deterioration in asset quality affects capital (and risk-weighted assets) through additional reserves that banks need to hold against the additional bad assets. The additional reserves reflect the rules in the country involving loan loss provisioning and the application of those rules in banking practice. Therefore, to model this link, one needs to understand well the prudential and supervisory framework in the country in question, which is where the findings of the BCP assessments can be of great help. The link between asset quality (and other risk factors) and capital is typically studied in the context of stress tests (see appendix D on stress testing for references on this issue). Another important topic of study involves the determinants of profitability. There is a large theoretical and empirical literature on the bank-level and country-level factors determining bank efficiency. This issue is further discussed in chapter 4. Quantitative analysis of FSIs can be complemented with information from assessments of the effectiveness of financial sector supervision. BCP assessments9 provide a vast array of contextual information that can be useful in interpreting FSIs. First, they can clarify the definition of data being used to compile FSIs by, for example, indicating the quality of capital. Second, they can help establish the underlying cause of observed movements in FSIs when there are competing explanations, such as whether a fall in the capital ratio might be supervisory action rather than rapid balance-sheet expansion. Third, they provide information on risks, such as operational and legal risk that cannot be captured adequately using FSIs. Fourth, they provide information on how effective the banks’ risk management is and, thus, how effectively the banking system is likely to respond to the risk associated with particular values for FSIs. Finally, they indicate the responsiveness of the supervisory system to emerging financial sector problems, which reveals how quickly vulnerabilities identified by FSIs are likely to be corrected. A lack of compliance with many of the BCP would suggest that the banking sector vulnerabilities detected using FSIs may be more serious than in a financial system with good compliance. Assessments
Chapter 3:Assessing Financial Stability of financial infrastructu rporate gov ce,accounting and auditing,insolvene egimes, the liquidity and 3.3.1.2 Analysis of FSIs for Insurance 3 Insurance is an important and growing part of the financial sector in virtually all devel oped and in many emerging economies;consequently,insurance sector soundness is important.Insurers help to allocate risks and to mobilize long-term savings (especially retirement savings)by spreading financial losses across the economy.Insurance compa- nies facilitate economic activity in sectors,such as shipping,aviation,and the profession- al services that are particularly reliant on insurance.The insurance companies can help to pro ote risk-mitigating activities through their incentives to as e and monito the risks hey are exp ed.Finally,in mpanies he elp pro to entities better able to evaluate,monitor,and mitigare those risk through specialization. The risk profiles of insurers and banks differ.Insurance companies generally are exposed to greater volatility in asset prices and face the potential for rapid deterioration in their capital base.Insurance companies typically have liabilities with longer maturities and assets with greater liquidity than banks have,thus enabling the insurance companies to play a larger role in long-term capital markets.Life insurers often have significantly exposure to equities and real estate and lower exposure to direct lending than do banks.I ries insurers offer products swith guaranteed retus,furthe r ex bat nsurance sector for financial stability has increased recentl because of intensified links between insurers and banks,thereby increasing the risk of contagion.Those links can include cross-ownership,credit-risk transfers,and financial reinsurance.Financial deregulation has caused insurers to diversify into banking and asset management products,thus exposing them to additional risk by making their liabilities more liquid.Insurers have also increased their exposure to equities and complex risk manager and declining yields on fixed-interest Assessing the soundness of the insurance sector requires ood understanding of link ages among,and determinants of, the various financial soundn sindicators for the i ance sector di supplemented by information on the quality of risk management in the insurance indus try.which will draw on the assessment of observance of relevant supervisory standards(see discussion that follows).Capital adequacy can be viewed as the key indicator of insurance sector soundness.However,analysis of capital adequacy depends on realistic valuation of both assets and liabilities of the insurance sector.Com pared with banking,asset side risks for the ins are similar.but liability side risks de nd on diffe ent factors,such should ak aphic and secto ral developments. ng the stability of the insurance e into account the size and grow of the sector, e im portance of type and asset-management-type product the of the indusry (inding th relative importance of the life sector),and the strength of linkages to the banking sector 43
43 Chapter 3: Assessing Financial Stability 1 I H G F E D C B A 12 11 10 9 8 7 6 5 4 3 2 of financial infrastructure––corporate governance, accounting and auditing, insolvency and creditor rights regimes, and systemic liquidity arrangements––can also help interpret the liquidity and solvency indicators. 3.3.1.2 Analysis of FSIs for Insurance Insurance is an important and growing part of the financial sector in virtually all developed and in many emerging economies; consequently, insurance sector soundness is important.10 Insurers help to allocate risks and to mobilize long-term savings (especially retirement savings) by spreading financial losses across the economy. Insurance companies facilitate economic activity in sectors, such as shipping, aviation, and the professional services that are particularly reliant on insurance. The insurance companies can help to promote risk-mitigating activities through their incentives to measure and monitor the risks to which they are exposed. Finally, insurance companies help promote stability by transferring risk to entities better able to evaluate, monitor, and mitigate those risks through specialization. The risk profiles of insurers and banks differ. Insurance companies generally are exposed to greater volatility in asset prices and face the potential for rapid deterioration in their capital base. Insurance companies typically have liabilities with longer maturities and assets with greater liquidity than banks have, thus enabling the insurance companies to play a larger role in long-term capital markets. Life insurers often have significantly higher exposure to equities and real estate and lower exposure to direct lending than do banks. In some countries, insurers offer products with guaranteed returns, further exacerbating risks for life insurers. The importance of the insurance sector for financial stability has increased recently because of intensified links between insurers and banks, thereby increasing the risk of contagion. Those links can include cross-ownership, credit-risk transfers, and financial reinsurance. Financial deregulation has caused insurers to diversify into banking and asset management products, thus exposing them to additional risk by making their liabilities more liquid. Insurers have also increased their exposure to equities and complex risk management products in response to deregulation and declining yields on fixed-interest products. Assessing the soundness of the insurance sector requires good understanding of linkages among, and determinants of, the various financial soundness indicators for the insurance sector discussed in chapter 2. In addition, the analysis of those indicators should be supplemented by information on the quality of risk management in the insurance industry, which will draw on the assessment of observance of relevant supervisory standards (see discussion that follows). Capital adequacy can be viewed as the key indicator of insurance sector soundness. However, analysis of capital adequacy depends on realistic valuation of both assets and liabilities of the insurance sector. Compared with banking, asset side risks for the insurance sector are similar, but liability side risks depend on different factors, such as demographic and sectoral developments. Assessing the stability of the insurance sector should take into account the size and growth of the sector, the importance of bankingtype and asset-management-type products, the structure of the industry (including the relative importance of the life sector), and the strength of linkages to the banking sector
Financial Sector Assessment:A Handbook Dara quality may be an issue because many countries lack the actuarial expertise,super- visory authority,or capacity to collect sufficient information The analysis and interpretation of soundness indicators should draw on an evaluation of the observance of Insurance Core Principles issued by the International Association of Insurance Supervisors (IAIS 2003)(see also chapter 5).This set of principles provides 3 information on the effectiveness of supervision,the structure and characteristics of com- panies in the sector,and other useful qualitative information that is not always captured by financial ratios.In particular.the cifics of supe affect asset c ompositi well s mix ulatory environme aken into account in interpreting insurance FSIs 3.3.1.3 Analysis of FSIs for Securities Markets Securities markets are a major component of the financial sector in many countries.The capitalization of equity and bond markets in many industrialized countries,with savings in securities investments now exceeding savings in deposits,dwarfs the aggregate assets of the banking system.Exposures of households.corporations.and financial institutions to securities markets have increased substantially through investments in primary and secondary markets and through trading of risk in financial markets. Well-developed securities markets offer an alternative source of intermediation,thus in the 6 tition.Well-fun ctioning markets providea mechanism for the efficien of assets of risks,create liquidity in financial claims,and efficiently all locate risks Those market help reduce the cost of capital,thereby raising economy-wide savings and investment They also foster market discipline by providing incentives to corporations and financial institutions to use sound management and governance practices The stability of securities markets can be monitored using a range of quantitative indicators measuring depth,tightness,and resilience of markets.Most quantitative indi cators focus on market liquidity because of the impor rtant role that liquid securities play in the balance sh ial institutions Ch usses the FSIs that me red by gross ave ily value of securities tra d relative to the stock) e analysis o securities markets FSIs focuses on trends in those key variables and their determinants,including institu tional factors and market structure (for an example of this type of analysis,see Wong and Fung 2002).The analysis also tries to assess resiliency of the market,which refers eithe to the speed with which price fluctuations resulting from trades are dissipated or to the speed with which imbalances in order flows are adjusted.Although there is no consensus yet on the appropriate measure for resiliency,one app roach is to examine the speed of the al market conditions (such as the bid-ask read and orde volume) after large tra For more on n the ss of ma y conditions in appendix D. For an alt e approach to measuring soundness using market volatility as a financial soundness indicator,see Morales and Schumacher (2003). Qualitative information drawn from standards assessments and other sources can also help assess stability of securities markets and can help interpret FSIs.The financial market
44 Financial Sector Assessment: A Handbook 1 I H G F E D C B A 12 11 10 9 8 7 6 5 4 3 2 Data quality may be an issue because many countries lack the actuarial expertise, supervisory authority, or capacity to collect sufficient information. The analysis and interpretation of soundness indicators should draw on an evaluation of the observance of Insurance Core Principles issued by the International Association of Insurance Supervisors (IAIS 2003) (see also chapter 5). This set of principles provides information on the effectiveness of supervision, the structure and characteristics of companies in the sector, and other useful qualitative information that is not always captured by financial ratios.11 In particular, the specifics of supervisory and regulatory environment affect asset composition, as well as the mix of risks, and should be taken into account in interpreting insurance FSIs. 3.3.1.3 Analysis of FSIs for Securities Markets12 Securities markets are a major component of the financial sector in many countries. The capitalization of equity and bond markets in many industrialized countries, with savings in securities investments now exceeding savings in deposits, dwarfs the aggregate assets of the banking system. Exposures of households, corporations, and financial institutions to securities markets have increased substantially through investments in primary and secondary markets and through trading of risk in financial markets. Well-developed securities markets offer an alternative source of intermediation, thus enhancing efficiency in the financial sector through competition. Well-functioning securities markets provide a mechanism for the efficient valuation of assets and diversification of risks, create liquidity in financial claims, and efficiently allocate risks. Those markets help reduce the cost of capital, thereby raising economy-wide savings and investment. They also foster market discipline by providing incentives to corporations and financial institutions to use sound management and governance practices. The stability of securities markets can be monitored using a range of quantitative indicators measuring depth, tightness, and resilience of markets.13 Most quantitative indicators focus on market liquidity because of the important role that liquid securities play in the balance sheets of financial institutions. Chapter 2 discusses the FSIs that measure market tightness (bid–ask spreads) and depth (market turnover, measured by gross average daily value of securities traded relative to the stock). The analysis of securities markets’ FSIs focuses on trends in those key variables and their determinants, including institutional factors and market structure (for an example of this type of analysis, see Wong and Fung 2002). The analysis also tries to assess resiliency of the market, which refers either to the speed with which price fluctuations resulting from trades are dissipated or to the speed with which imbalances in order flows are adjusted. Although there is no consensus yet on the appropriate measure for resiliency, one approach is to examine the speed of the restoration of normal market conditions (such as the bid–ask spread and order volume) after large trades. For more on the robustness of market liquidity under conditions of stress, see the discussion in section 3.3.2 and in appendix D. For an alternative approach to measuring soundness using market volatility as a financial soundness indicator, see Morales and Schumacher (2003). Qualitative information drawn from standards assessments and other sources can also help assess stability of securities markets and can help interpret FSIs. The financial market