This financial sector assessment (FSA)summarizes the key findings and recommendations of the 2008FSAP update report for Romania. The main findings of theFSAP update are: the financial system entered the crisiswell capitalized and with high liquidity buffers, and thefour financial sector regulatory authorities have madesignificant progress in adopting international bestpractice, including through transposition of European Union(EU) directives, and implementation of many of therecommendations of the 2003 FSAP. While the banking systemis currently well capitalized, the rapid deterioration ineconomic conditions and the depreciation of the leu may putstrains on bank capital. The measures to strengthen thesystem are needed: an ex ante strengthening of capitalpositions is warranted; the overall exposure of foreignparent banks to Romania should be maintained; banks need todevelop effective debt restructuring or workout proceduresfor household and corporate clients; crisis managementcoordination should be accelerated; bank resolution powersstrengthened; and deposit insurance funding and payoutarrangements improved. Some cross-sectoral themes emerge tostrengthen the supervisory frameworks, including the need tostrengthen the political independence and financial autonomyof the non-bank financial regulators; better cross-sectoralcooperation in supervision of financial groups; furthermovement toward a more risk-based approach to supervision;better consistency in valuation rules for marketinstruments; adoption of international financial reportingstandards (IFRS) accounting; and in the banking sector,strengthening of the basel two implementation framework.Longer term developmental issues include the need to addressobstacles to capital market development, certain risks ininsurance, and to ensure sustainability of the pensionsystem reform.
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