Jordan: Financial Sector Assessment Program-Financial System Stability Assessment

This paper on Jordan focuses on the financial system stability assessment. Jordan’s financial sector, dominated by banks, has withstood several large external shocks since the latest financial sector assessment program (FSAP) that was conducted in 2008–09 in part thanks to measures implemented by the authorities to enhance the system’s resilience and oversight. The FSAP’s systemic risk analysis found that Jordan’s banking sector appeared broadly resilient. Banks would be able to withstand a large global stagflationary shock, if it were to occur, given high levels of system-wide regulatory capital and robust earnings. The challenging external risk environment highlights the need strengthening the financial stability framework. The FSAP recommended that the banking supervision approach be more risk-based and forward-looking. Pillar 2 supervisory assessments should be developed for more risk-sensitive capital requirements. The macroprudential framework needs stronger decision-making and a more refined strategy. Several data gaps should be filled to implement stress tests on a globally consolidated basis, run systemic foreign currency liquidity analyses, and perform more granular analyses of household and corporate sector vulnerabilities to guide the calibration of borrower-based macroprudential tools.