Mongolia is currently enjoying a vigorous economic recovery. Nevertheless, challenges remain. Banking sector soundness indicators have improved since the 2008 crisis, but capital ratios are likely overstated. Stress tests suggest that credit risk remains the principal vulnerability for banks. The authorities have submitted to parliament the Empowering the Banking Sector and Capital Support Program. The BOM permits regulatory forbearance. Recently, the authorities have tightened prudential regulations on asset classification and loss provisions. The blanket deposit guarantee provides overly generous coverage and needs to be replaced by a well-designed deposit insurance scheme.