El Salvador Financial Sector Assessment Program Update : Basel Core Principles for Effective Banking Supervision

This assessment of the Basel Core Principles (BCP) was conducted as part of the financial sector assessment program (FSAP) update evaluation of the El Salvador financial system from April 22 to May 10, 2010. The supervisory framework was assessed against the BCP methodology issued in October 2006. The assessment of compliance with each principle is made on a qualitative basis. A four-part assessment system is used: compliant; largely compliant; materially noncompliant; and noncompliant. A largely compliant assessment is given if only minor shortcomings are observed, and these are not seen as sufficient to raise serious doubts about the authority's ability to achieve the objective of that principle. A materially noncompliant assessment is given when the shortcomings are sufficient to raise doubts about the authority's ability to achieve compliance, but substantive progress has been made. A noncompliant assessment is given when no substantive progress toward compliance has been achieved. The ratings assigned during this assessment are not comparable to the ones assigned in the 2000 FSAP, as the bar to measure the effectiveness of a supervisory framework has been raised in the new methodology. This paper is structures as follows: introduction; information and methodology used for assessment; institutional and macroeconomic setting and market structure- overview; preconditions for effective bank supervision; main findings; and recommended action plan and authorities' response.