statistics for macro-prudential analysis and micro-prudential supervision: transferable insights to...

Statistics for macro-prudential

analysis and micro-prudential

supervision:

transferable insights to other

central banks

Skopje seminar2-5 October 2013

Jean-Marc Israël

Head of Division,

Monetary and Financial Statistics

ECB

Outline

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Outline

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- Increasing economic interdependencies among main economies need globally-comparable economic and financial statistics/indicators

- Increasing economic interdependencies among main economies need globally-comparable economic and financial statistics/indicators

Official statistics support multilateral policy responses

- For better financial stability analysis - For better financial stability analysis

Financial crisis revealed additional efforts are needed

- For monetary policy purposes- For monetary policy purposes

Central banks developed large amount of high quality data

Reliable statistics for global financial stability

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Crisis and role statistics Macroeconomic surveillance Conclusions

Action plan on IMF/FSB report to G-20

1.20 Recommendations developed and implemented

2.Key role Inter-Agency Group on Economic and Financial Statistics

3.Principal Global Indicators (PGIs) website

http://www.principalglobalindicators.org

Statistics for financial stability: G-20

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Furthermore, G-20 support to the FSB-led initiative to create a global Legal Entity Identifier

1. Better capture build-up risk financial sector

2. Improve data international financial network

connections

3. Monitor vulnerability of domestic economies to

shocks

4. Better communication official statistics

1. Better capture build-up risk financial sector

2. Improve data international financial network

connections

3. Monitor vulnerability of domestic economies to

shocks

4. Better communication official statistics

G20 Recommendations

G-20 Recommendations

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Data gapExisting framework and ongoing collection

Framework needs further development

Build-up of risk in the financial sector

#2 Financial Soundness Indicators (FSIs) #5 Credit Default Swaps#7 Securities

#3 Tail Risk in the Financial System

#4 Aggregate Leverage and Maturity Mismatches

#6 Structured Products

Cross-border linkages

#10, #11, #12 Coordinated Portfolio Investment Survey, International Banking Statistics, International Investment Positions

#8 and #9 Global Network Connections and Systemically Important Global Institutions

#13 and #14 Financial and Nonfinancial Corporations’ Cross Border Exposures

Vulnerability of domestic economies to shocks

#15 Institutional Sector Accounts

#17 Government Finance Statistics

#18 Public Sector Debt

#19 Real Estate Prices

#16 Distributional Information

Improving communication

#20 Principal Global Indicators (PGI)

G-20 Recommendations

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• The EU has a double role in the G-20 data gaps initiative:

– EU as Member of the G-20

Eurostat and ECB are providers of the statistics for the EU and the Euro Area

– Geographical area

Eurostat and ECB act as regional hubs for data collection for the EU countries

Eurostat and the ECB promote the developments of the European Statistical System and of the European System of Central Banks to match the G-20 Recommendations

European Union (EU) and G-20

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Sectoral accounts work of high importance1

Demand for greater granularity of data2Comprehensive and high-quality data essential 3Align data requirements for macro- and micro-prudential needs 4

Look for synergies with IMF SDDS Plus requirements5

Need to set priorities and timelines and to provide resources6

Strategic action lines

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2012 IMF/FSB Report to G-20: action plans

Table 1: Enhancements Existing Statistical Frameworks and Ongoing Collection

RecommendationEnhancements Implemented

Progress to date in G-20 Economies Reporting

Timetables Going Forward and outstanding

issues

#2. Financial Soundness Indicators

#5. Credit Default Swaps

#7. Securities Statistics

#10/#11. Coordinated Portfolio Investment Survey

#10/#11. International Banking Statistics

#12. International Investment Position

#15. Sectoral Accounts

#17. Government Finance Statistics

#18. Public Sector Debt

#19. Real Estate Prices

#20. PGI

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Outline

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2.1

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Macro-prudential oversight

As the financial crisis, triggered in August 2007 persisted and spread, in particular with the Lehman collapse in September 2008, the Financial Stability Board (in particular the US and the EU) decided to react to:

Enhance micro-prudential supervision

Develop a new function: macro-prudential oversight

Both micro and macro-prudential activities heavily rely on

timely, accurate and harmonised datasets

NB: Micro-prudential supervision stands for the oversight of individual institutions in the respective sector (banking, insurance, etc.)

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Macro-prudential oversight Data needs ECB response

European institutional framework (I)

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European institutional framework (II)


Macroprudential

oversight

[ESRB]

Microprudential supervision Macroeconomic policies

• Contribute to prevention of systemic risks to financial

stability in the EU

• ESRB establishes link micro-prudential supervision and

macro-economy

• ECB provides statistical support to ESRB

• Contribute to prevention of systemic risks to financial

stability in the EU

• ESRB establishes link micro-prudential supervision and

macro-economy

• ECB provides statistical support to ESRB

Macroprudential oversight

Scope of macro-prudential oversight

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1. Interlinkages

2. Profitability and solvency

3. Funding and liquidity

4. Credit risk

5. Market risk

6. Macro risk

ECB: identify main datasets and set priorities for ESRB/ECB’s own financial stability needs

Financial stability analysis – data needs

Led to breakdown in 6 risk categories:

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ECB’s statistical initiatives

For each risk category, it is assessed:

– Which data are available according to the appropriate concepts

– Possible proxy data

– Are data missing?

1. Interlinkages

2. Profitability and

solvency

3. Funding and liquidity

4. Credit risk

5. Market risk

6. Macro risk

Risk typologies

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ECB’s statistical initiatives

• Data often available in Eurosystem/ESCB or other national (supervisory) authorities

Otherwise, surveys enable to get a picture

• Distinctive datasets:• Active: data are reported to the competent authority

• Passive: data are defined (e.g. supervisory framework) though not regularly reported

• Ad-hoc: data need first to be defined and then reported

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2.3

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New statistics on

• Investment funds (2009)

• Financial Vehicle Corporations engaged in securitisation (2011)

• Insurance Corporations and Pension Funds (2011)

• Financial market statistics

Development micro-datasets

• Centralised Securities Database

• Securities Holding Statistics

• Loans

• Consolidated banking data

• Register of Financial Institutions

• Household and corporate surveys

Enhancements to statistics

• Further development euro area accounts (flow of funds, etc.)

• Implementation new manuals (SNA2010-ESA2010, BPM6, etc.)

Other datasets

•BIS banking and CDS statistics

•IMF FSIs

•Commercial data

•Ad-hoc surveys

The ECB response to financial stability data needs

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New statistics- better information on all financial sectors Enhanced Monetary and Financial Statistics

• New statistics on assets and liabilities of euro area Investment Funds

Investment Funds

• Regular compilation statistics on euro area Financial Vehicle Corporations engaged in securitisation transactions and MFI securitisationFinancial

Vehicle Corporations

• New statistics on euro area Insurance Corporations & Pension Funds Insurance

Corporations & Pension Funds

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Breakdowns

• Providing more breakdowns of banks’ balance sheet and interest rates

Credit lines

• New data on credit lines granted by banks

Compilation

• Compilation harmonised financial statistics on a consolidated basis

Alignment

• Working with supervisors in a better alignment of supervisory and statistical concepts and data

• Further advancing timelinessTimeliness

New statistics- better information on all financial sectors Enhanced Monetary and Financial Statistics

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1. Financial markets statistics

2. Probability density functions

3. Exposures to sovereign debt/GFS

4. STEP market statistics

5. Foreign currency borrowings by non-financial corporations, households, or credit institutions

1. Financial markets statistics

2. Probability density functions

3. Exposures to sovereign debt/GFS

4. STEP market statistics

5. Foreign currency borrowings by non-financial corporations, households, or credit institutions

Other monetary / financial statistics in demand

New statistics - Better information on financial markets

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Register of Financial institutions and groups composition1

Consolidated Banking Data/National Banking Indicators 2

Granular Credit Data3Sectoral/individual Issuance and Holdings of Securities4

SME Corporate finance6

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Statistics and Micro-databases

Developments of micro-datasets


Household consumption and financing survey5

Other datasets

Other datasets

• BIS banking statistics (consolidated and locational by nationality)

• Banks’ disclosures • Commercial data from

Bloomberg, Moody’s, etc.

• BIS banking statistics (consolidated and locational by nationality)

• Banks’ disclosures • Commercial data from

Bloomberg, Moody’s, etc.

Ad-hoc surveys

• Occur for specific issues

• Tailored to latest developments in financial sector

• Especially while EU Supervisory reporting frameworks are still in the making

• Occur for specific issues

• Tailored to latest developments in financial sector

• Especially while EU Supervisory reporting frameworks are still in the making

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1. Enhancing integrated quarterly financial and non-financial accounts euro area:

• Advance timeliness• Improve consistency• Enhance completeness, coverage and length

2. Consolidated lending exposures credit institutions vis-à-vis counterparts

3. Implementation of new international statistical standards (SNA2008-ESA2010, BPM6)

Enhancements to macroeconomic statistics

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ECB support to the ESRB

Improvements

• White Book – i.e. regular information pack

• Reference database for surveillance reports and regular models

supporting risk analysis

• Risk Dashboard

• Focus on EU Member States, e.g. National banking

indicators

• White Book – i.e. regular information pack

• Reference database for surveillance reports and regular models

supporting risk analysis

• Risk Dashboard

• Focus on EU Member States, e.g. National banking

indicators

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Examples presentations White Book

Examples

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Examples

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The European Systemic Risk Board (ESRB) monitors and assesses the sources of systemic risk across the EU financial system as a whole

The ECB provides analytical, statistical, administrative and logistical support to the ESRB

Legal obligation to define a risk dashboard

ESRB Regulation (Art. 3.g) requires that the ESRB “in collaboration with the ESAs, develop a common set of quantitative and qualitative indicators (risk dashboard) to identify and measure systemic risk.”

ESRB Risk Dashboard defined in cooperation with the ECB

ESRB Risk Dashboard

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ESRB Risk Dashboard 1st publication 20 September 2012

Specifications:

45 indicators and 6 risk typologies

Allows synthetic view situation for deeper

analysis

Cannot replace expert judgement, but

complements it

ObjectivesObjectives

Risk assessmentInput further systemic risk analysis

Risk assessmentInput further systemic risk analysis Communication toolCommunication tool

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ESRB Risk Dashboard

• Domestic credit-to-GDP ratio• Actual and forecasted GDP growth• Domestic credit-to-GDP ratio• Actual and forecasted GDP growthMacro riskMacro risk

• Households debt-to-gross disposable income

• Real estate comm. property, market size over GDP

• Households debt-to-gross disposable income

• Real estate comm. property, market size over GDP

Credit riskCredit risk

• Global risk aversion indicator• Price/earning ratio• Global risk aversion indicator• Price/earning ratioMarket riskMarket risk

Liquidity & FundingLiquidity & Funding • Bank liabilities structure• Bank liabilities structure

InterlinkagesInterlinkages

• Composite indicator of systemic stress (CISS)

• Average systemic risk contribution of individual institution to overall risk using CoVar (EU banking syst.)

• Composite indicator of systemic stress (CISS)

• Average systemic risk contribution of individual institution to overall risk using CoVar (EU banking syst.)

Profitability & Solvency

Profitability & Solvency • EU large banks: Leverage ratios• EU large banks: Leverage ratios

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ESRB Risk Dashboard

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Six risk typologies

Macro risk

Credit risk

Market risk

Liquidity and funding

Interlinkages

Profitability & solvency

Interlinkages

ESRB Risk dashboard examples

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Funding and liquidity

“Good statistics are much cheaper than policy mistakes‘‘

(Janez Potočnik, EU Commissioner for the Environment, Eurostat Conference 2011)

Outline

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Overview

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Euro area summit statement (29 June):

“The Commission will present Proposals on the basis of Article 127(6) for a single supervisory mechanism shortly. We ask the Council to consider these Proposals as a matter of urgency by the end of 2012.

When an effective single supervisory mechanism is established, involving the ECB, for banks in the euro area the [European Stability Mechanism] could, following a regular decision, have the possibility to recapitalize banks directly.”

=> Draft Regulation will soon be adopted

(based on Art. 127.6 of the Treaty)

Overall framework (1/2)

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Three components:

- Banking supervision (on- and off-site) – high priority

- Resolution mechanism – second high priority

- Deposit guarantee scheme – lower priority

It has become critical to “break the vicious circle between banks and

sovereigns”

Overall framework (2/2)

Scope – some important articles

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Art. 5: Both the ECB and national competent authorities shall be subject to a duty of cooperation in good faith, and an obligation to exchange information

Art. 5: Both the ECB and national competent authorities shall be subject to a duty of cooperation in good faith, and an obligation to exchange information

Art. 9: ECB empowered to require […] including information to be provided at recurring intervals and in specified formats for supervisory and related statistical purposes

Art. 9: ECB empowered to require […] including information to be provided at recurring intervals and in specified formats for supervisory and related statistical purposes

Art. 18: Separation from monetary policy function; […] the ECB shall adopt and make public any necessary internal rules, including rules regarding professional secrecy and information exchanges between the two functional areas.

Art. 18: Separation from monetary policy function; […] the ECB shall adopt and make public any necessary internal rules, including rules regarding professional secrecy and information exchanges between the two functional areas.

Commission proposal on the SSM agreed by Council (ECOFIN) on 12 September 2012 (I/3)

Art. 20: Professional secrecy and exchange of information [with national or European authorities and bodies]

Art. 20: Professional secrecy and exchange of information [with national or European authorities and bodies]

Scope – article 5(4)

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Total assets > €30 bnTotal assets > €30 bn

Receiving public assistance from EFSF or ESMReceiving public assistance from EFSF or ESM

Ratio total assets/GDP > 20% (unless total assets < €5 bn)Ratio total assets/GDP > 20% (unless total assets < €5 bn)

Significance is notified by NSA and confirmed by ECBSignificance is notified by NSA and confirmed by ECB

Upon ECB initiative, significant cross-border activity (subsidiaries in more than one countries etc.); MethodologyUpon ECB initiative, significant cross-border activity (subsidiaries in more than one countries etc.); Methodology

The ECB shall be responsible for the supervision of significant banking groups, stand-alone banks and branches, which on a consolidated basis meet any of the following conditionsThe ECB shall be responsible for the supervision of significant banking groups, stand-alone banks and branches, which on a consolidated basis meet any of the following conditions

Commission proposal on the SSM agreed by Council (ECOFIN) on 12 September 2012 (2/3)

The three most significant banks in each countryThe three most significant banks in each country

By 1.7.13, ECB to publish the framework (list of significant banks, methodology, etc)

Legal power to request information

INVESTIGATORY POWERSArticle 9Requests for information

INVESTIGATORY POWERSArticle 9Requests for information

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The ECB may require the following legal or natural persons (see list below) to provide all information that is necessary in order to carry out the SSM tasks, including information to be provided at recurring intervals and in specified formats for supervisory and related statistical purposes. Where the ECB obtains information directly from these persons, it shall make that information available to national authorities concerned.

credit institutionscredit institutions

persons belonging to such entities or 3rd parties to whom entities have outsourced functions or activitiespersons belonging to such entities or 3rd parties to whom entities have outsourced functions or activities

financial holding companiesfinancial holding companies

mixed financial holding companiesmixed financial holding companies

mixed-activity holding companiesmixed-activity holding companies

Information can be requested from Information can be requested from

Commission proposal on the SSM agreed by Council (ECOFIN) on 12 September 2012 (3/3)

…. in compliance with single rule book (by European Banking Authority)!

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Organisation chart for supervisory data flows: state-of-play in euro area countries

In 13 euro area countries the NCB is also the NSA

The organisation of supervisory reporting is integrated either in Statistics orin a separate unit (with access to supervisory data)

In the remaining 4 euro area countries (EE, FI, FR and MT)

Supervisory data are collected by the NCB on behalf of the NSA in MT and FR

Statistics have access to the supervisory data in the NCBs of EE and FI

In Banque de France, access to supervisory data is limited to statistical use

Consequent working assumption (to be validated):

data flows can be organised via (Statistics Departments of) NCBs in the euro area

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Organisation chart for supervisory data flows: MFI balance sheet statistics: a model for SSM?

Monetary analysisMonetary analysis

MFIsMFIs

NCBsNCBs

ECBECB

Other statistical purposes:• National accounts• Balance of payments

Other statistical purposes:• National accounts• Balance of payments

Minimum reservesMinimum reserves

Economic and financial stability analysis

Economic and financial stability analysis

IndividualIndividual

Individual &aggregatedIndividual &aggregated

Euro area and EU perspectiveEuro area and EU perspective

National perspective

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SSM – Other data-related issues (1/2)

Coverage:• About 130 Banking groups in the euro area

based on the thresholds in the draft Regulation

• Ca. 2,000 Credit institutions

– pertaining to these banking groups and financial conglomerates, or

– stand-alone banks

Reporting• The banking groups will fall under the micro-supervision of the

ECB, and will still remain subject to EU law (likely from mid-2014)

– e.g. single rule book will apply, as set up and maintained by the EBA

• The ECB may need additional, more specific and timely information

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SSM – Other data-related issues (2/2)Scope:

• Initial pilot based on data available

• For supervision of ‘significant’ cross-border groups, ECB staff will need to adequately receive, store and disseminate highly sensitive information

based on the existing (not fully comparable) and forthcoming (harmonised) FINREP / COREP

• The ECB will also make available a wide range of (available or new) information on

» groups’ composition (for mapping purpose, and combining various datasets)

» very granular securities (issues and holdings),

» loans (from credit registers, etc.),

» derivatives (e.g. CDS)

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Many outstanding questions arising from SSM

How will the task related to data collection be shared with national authorities?

How will the task related to data collection be shared with national authorities?

Access by supervisors to ECB statistical data?

Access by supervisors to ECB statistical data?

Uses of information for macro-prudential or

monetary policy analysis?

Uses of information for macro-prudential or

monetary policy analysis?Internal ECB organisation:

integration of supervisory/statistical data

processes?

Internal ECB organisation: integration of

supervisory/statistical data processes?

Sharing of tasks will have an impact on scope of individual information collected by the ECB

Sharing of tasks will have an impact on scope of individual information collected by the ECB

National discretion in current supervisory

reporting (e.g. Pillar II and FinRep for non-IFRS banks)?

National discretion in current supervisory

reporting (e.g. Pillar II and FinRep for non-IFRS banks)?

How many banks will be supervised under the SSM and from when?

How many banks will be supervised under the SSM and from when?

Data flow to/from EBA/ESMA/ESRB?Data flow to/from EBA/ESMA/ESRB?

Which data from banks not supervised by ECB?

Which data from banks not supervised by ECB?

List of significant banks and their maintenance?

List of significant banks and their maintenance?

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Thank you for your attention!

Questions? ☺

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