what available data can tell us and what more data are needed? – Published on naked capitalism, by Eugenio Cerutti, Stijn Claessens, and Patrick McGuire, December 16, 2012.
The starting point for systemic risk analysis for a single-country is typically the banking system1. A systemic risk analysis involves the use of disaggregated national bank data, including information on the composition of banks’ asset and liabilities, maturity and currency mismatches, and other balance sheet and income metrics.
These national-based analyses then attempt to capture systemic risks stemming from common exposures, interbank linkages, funding concentrations, and other factors that may have a bearing on banks’ income, liquidity and capital adequacy conditions. Examples of such quantitative approaches are Boss et al (2006) for Austria and Alessandri et al (2009) for the UK.
Extending analysis to multi-country level – or not
Our approach, highlighted in Cerutti, Claessens and McGuire (2011) does not, however, directly extend to the multi-country level for a number of reasons:
- Lack of institutional mechanisms which ensure coordination of national approaches
International financial linkages, by definition, involve more than one legal jurisdiction. For various reasons (legal framework, accountability to parliaments and taxpayers, etc.), policy makers tend to focus on national objectives. In addition, supervision of large, internationally-active financial institutions is often dispersed among agencies in many countries, with imperfect sharing of information and limited tools to coordinate remedial actions. Moreover, a global framework for the resolution of these institutions is lacking2. There is also no formal lender of last resort to address liquidity problems in foreign currencies3.
- Greater complexity in the international context.
Differences in firms’ organisational structures and legal status, which play limited roles in a strictly national context, complicate systemic risk measurement and (crisis) management internationally.
- Scarcity of data that capture the international dimensions of systemic risk
Supervisors in each jurisdiction have access to granular data for banks operating in their jurisdiction. However, the supervision of internationally active institutions relies on data collection practices that tend to differ across jurisdictions. Moreover, confidentiality concerns generally restrict the sharing of data, even within the supervisory community.
Existing data sources and their weaknesses: … //
… How to improve the data:
To improve quality and availability of data, the IMF and the Financial Stability Board (FSB) have jointly issued a report to the G20 finance ministers and central bank governors with recommendations that include the creation of a common reporting template for globally systemically important financial institutions (G SIFIs). An international working group has already produced a set of draft data templates designed to capture detailed information about banks’ asset and funding positions, and on the linkages between banks and other individual institutions (see IMF-FSB, 2011). As these initiatives go forward, the resulting data would greatly improve analyses (see IMF-FSB, 2011 for details). In parallel with these efforts, enhancements to the aggregate BIS international banking statistics, which cover a much wider universe of banks, are underway6.
Even with improved aggregate banking statistics and better bank-level data, other dimensions of systemic risk will likely remain inadequately covered. While better coverage of banks is a top priority, non-banks, including pension funds, insurance companies and large multinational corporations, can also be systemically important. This suggests going forward including not only such non-bank institutions in the counterparty sector breakdown of banks’ exposures, but also bringing large non-bank firms under the data gathering umbrella … //
(Authors’ note: The views expressed here are those of the authors and should not be attributed to the IMF or the BIS, or their respective Executive Directors or Management)
… (full text, charts and references).
(Cerutti is a Senior Economist at the Research Department of the IMF; Claessens is Assistant Director in the Research Department of the International Monetary Fund, Professor of International Finance Policy at the University of Amsterdam and CEPR Research Fellow; McGuire is senior economist in the Financial Institutions section, Bank for International Settlements. Originally published at VoxEU).
Eurozone crisis live: China warns of difficult outlook for Europe, on The Guardian, by Graeme Wearden, December 17, 2012;