data needs and cross-border exposures presentation to the imf july 8 th, 2009 christopher reid bank...
TRANSCRIPT
Data needs and cross-border exposures
Presentation to the IMF July 8th, 2009
Christopher ReidBank of Canada
Mandates and cross-border exposures
• Micro prudential regulators are mandated with the viability of individual institutions .. And they typically have access to the data.
• Macro prudential oversight is now a key consideration – Canada has helped form the thinking on this issue through G-20
working group 1.
• From a macro prudential level we need better understanding of interconnections and common exposures– domestically and internationally
• This will require new data
What is the purpose of understand cross-border exposures?
• In the end, we care about shocks and vulnerabilities that originate in other countries impacting our respective domestic FIs and markets.
• What we need is a complete, and integrated model of all “systemically” important financial institutions with all the linkages and common exposures identified and quantified.
– To do so we need to understand the risks in:1. The trading book,2. the loan book; and 3. funding risks.
The First Best Solution not realistic
• We need to know everything about everybody at all times ….
State of play
• BIS consolidated banking statistics best current source of cross border exposures
– But data is highly aggregated and focused on loan book
• In Canada, we can supplement this information with: • Bank of Canada’s Business and Financial Statistics
- Aggregated Balance sheet data available …• Private information from the Office of the Superintendent of
Financial Institutions (OSFI)
- Limited data on assets and liabilities of specific Canadian banks
Recent crisis as an example
• Initial shock propagated via the trading book rather than the banking book
• Lack of transparency led to elevated counterparty concerns
• Which in turn fed into funding markets• Canadian banks’ funding costs (CDOR-OIS)
increased markedly, despite little direct exposure to shock
• Contagion is a key concern for the Canadian financial system
Data shortcomings• Aggregate data is less useful in understanding contagion
amongst financial institutions.– Institution specific data is a sensitive issue
• Banking book exposures are relatively accessible in existing data
• Exposures in the trading book are less transparent and likely more important and timeliness is an issue
• OTC markets and securitization markets represent significant exposure for FIs – but relatively little data is available
• Funding and liquidity information• Reporting of “non-banks” must be improved
Data consistency and access issues
• Different definitions and accounting standards are a problem– Being dealt with by BCBS, IASB, and FASB
• Significant undertaking - Comparing data across countries requires detailed knowledge of the construction of each data series.
• Access to data is limited to a sub-set of countries• Cross border bank net exposures are hard to establish
– where the trade is booked is less helpful.
Theory also lagging behind
• Contagion literature still has far to go• Identifying and evaluating the importance of all
the linkages is in the early stages• Process is also dynamic – regulatory changes
will change the financial landscape and data needs will change as a result
• Need to capture second-round effects
Even if we had all the data …
• Many unresolved issues:• Example: Bank A is exposed to Company B in the
following way:1. Long $5 Million in loan exposure
2. Long $2 million in equity holdings
3. Long $3 million in unused credit commitments
4. Short $10 million as part of a CDO mezzanine tranche
– What is the net exposure of Bank A to Company B? – How does this net exposure vary with market
movements?
Work to be done
• Steps towards the standardization and centralization of the OTC market are encouraging
• Need data on counterparty exposures• Trading book data - establish typical exposures
and cyclical patterns
International cooperation between regulators is key
• Data requirements are similar for deciphering domestic and foreign exposures
• Challenge lies in accessing information• Sharing information across jurisdictions is
essential but may be difficult to put in place in practice
• Regulatory colleges will improve regulatory cooperation – but how does this extend to macro-prudential?
Key points
What we need:• More disaggregated data• Information about trading book, including OTC
markets exposures• Better theory• Better cooperation between regulators and
central banks both domestically and across borders.