Strengthening Financial Stability Framework in Paraguay
Project Development Objective (PDO)
The main objective of this technical assistance project is to contribute to the strengthening of the financial stability framework in Paraguay through the establishment of a financial system council to monitor and respond to systemic vulnerabilities in the financial sector.
Paraguay made significant progress in recent years with respect to the regulation and supervision of its financial sector, including through strengthened capacities and independence of the regulator, increased use of risk-based supervision, and strengthened prudential rules. The country has a dual oversight system in which the Central Bank is responsible for supervising the banking sector, financial companies, and insurance companies and the Instituto Nacional de Cooperativismo (National Institute of Cooperatives) is responsible for oversight of cooperatives. The pension sector has no comprehensive regulatory and supervisory framework, and oversight functions are distributed among the Central Bank, the Contraloría General de la República (Comptroller General of the Republic), and the Social Security Directorate of the Ministry of Justice and Labor. Responsibilities for regulation and oversight of the financial sector are thus spread across diverse institutions with no formal arrangements for effective coordination.
Paraguayan authorities requested technical assistance to promote coordination of initiatives related to financial stability and to harmonize prudential norms across the various agencies.
The project includes the following activities:
1. Developing a legal and regulatory framework for the establishment of a Financial System Council
2. Creating a framework for the identification of systematically important bank
3. Developing an analytical framework for macroprudential analysis
4. Consolidating in-house capacities for preparing, conducting, and assessing crisis simulation
The expected outcome of this project is improved coordination and information sharing among all agencies responsible for financial stability analysis and oversight.