Bank Assessment Model

Bank Assessment Model

Countries aim to build sound and efficient banking systems. While enhancing the quality of bank regulation and supervision, strengthening risk management and improving the capacity of authorities to deal with weak and insolvent banks, countries need to consider a number of variables (assumptions), which have a direct or indirect impact on the banking sector. Among other, the variables refer to macroeconomic environment, interest rates, quality of assets, evolution of the financial and banking markets as well as other banking and regulatory environment factors.

World Bank Response: To address the challenge of building sound and efficient banking systems, the World Bank assists countries to adopt a Bank Assessment Model (BAM). This tool advocates the use of financial simulation as part of systemic surveillance and post-examination follow up activities.

BAM may allow bank supervisory agencies to simulate the future financial condition of a bank, a group of banks or an entire banking system using different scenarios and assumptions. Among other, the tool may assist supervisory agencies to evaluate the feasibility of rehabilitation plans or quantify the cost of resolving insolvent financial institutions through different mechanisms (e.g. mergers and acquisitions, good bank-bad bank, purchase and assumption transactions, liquidation, etc). BAM helps also to assess the impact of new laws, regulations, and taxation policies on the profitability and capitalization of financial institutions. It is suitable for assessments of individual banks, as well as groups of banks and the entire banking sector.