The Art of Knowledge Exchange : A Primer for Government Officials and Development Practitioners
In 2009, in the midst of the financial crisis, analysts were concerned that banks in Nepal were dangerously overexposed to inflated real estate and equity markets. Nepal's Central Bank (NRB) decided to evaluate its commercial banks, but needed outside expertise and assistance for stress-testing its banks and assessing the damages that could result from economic shocks. Standard International Monetary Fund (IMF) models for evaluating banks in developed economies, however, proved too complex and were unsuitable for the circumstances of a small developing country. Meanwhile, the State Bank of Pakistan (SBP) had been carrying out quarterly stress-testing of banks in Pakistan. Upon hearing about SBP's capabilities from the World Bank, NRB leadership was eager to learn how to apply Pakistan's regulatory analysis in Nepal. The World Bank facilitated and funded a knowledge exchange between the two central banks so that NRB staff could learn to use a simplified stress-testing, scenario-based model to evaluate the financial stability of Nepal's banks, develop regulations to maintain the stability of banking institutions, and establish contingency plans in the case of failure of a Nepalese bank. This story demonstrates the power of doing development differently. Nepal is very motivated to solve a pressing problem. It actively shops for a solution: the standard model is not suitable, but the Pakistani model is. Pakistan is eager to share its model with Nepal. Nepal adopts and adapts it, and it works.
Summary: | In 2009, in the midst of the financial
crisis, analysts were concerned that banks in Nepal were
dangerously overexposed to inflated real estate and equity
markets. Nepal's Central Bank (NRB) decided to evaluate
its commercial banks, but needed outside expertise and
assistance for stress-testing its banks and assessing the
damages that could result from economic shocks. Standard
International Monetary Fund (IMF) models for evaluating
banks in developed economies, however, proved too complex
and were unsuitable for the circumstances of a small
developing country. Meanwhile, the State Bank of Pakistan
(SBP) had been carrying out quarterly stress-testing of
banks in Pakistan. Upon hearing about SBP's
capabilities from the World Bank, NRB leadership was eager
to learn how to apply Pakistan's regulatory analysis in
Nepal. The World Bank facilitated and funded a knowledge
exchange between the two central banks so that NRB staff
could learn to use a simplified stress-testing,
scenario-based model to evaluate the financial stability of
Nepal's banks, develop regulations to maintain the
stability of banking institutions, and establish contingency
plans in the case of failure of a Nepalese bank. This story
demonstrates the power of doing development differently.
Nepal is very motivated to solve a pressing problem. It
actively shops for a solution: the standard model is not
suitable, but the Pakistani model is. Pakistan is eager to
share its model with Nepal. Nepal adopts and adapts it, and
it works. |
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