What are the main data issues arising from the crisis?

IMF-FSB Users ConferenceWashington, D.C.(July 8–9, 2009)

Simon Hall

Bank of England

Larger banksMajor UK banks’ and LCFIs’ total assets(a)

Sources: Bankscope published by Bureau van Dijk Electronic Publishing, published accounts and Bank calculations.(a) Assets converted at average exchange rate 2001–08.(b) US GAAP banks report on a net basis; IFRS banks’ derivative exposures netted from 2007.(c)‘Other’ includes other receivables, other assets, goodwill and property and insurance.

Larger banksConsolidated banking group assets relative to GDP

by nationality of ownership(a)(b)(c)

Sources: The Banker, Bankscope published by Bureau van Dijk Electronic Publishing, International Monetary Fund and Bank calculations.(a) Total consolidated banking group assets for domestically owned banking sector only. This includes assets of domestic banks held abroad. (b) End-2007, except for the United Kingdom, which is at end-2008.(c) Data for all countries except the United Kingdom are from The Banker’s ranking of the world’s largest 1,000 banks by assets. This measure will

underestimate the size of banking systems that have a large proportion of banking sector assets outside of the list. UK data are from Bankscope and include all banks and building societies.

Greater interconnectedness

Global financial network1985 2005 (a)

Sources: BIS, IMF, OECD, UNCTAD and Kubelec and Sa (2009).

(a) Nodes represent countries and are scaled in proportion to a country’s gross external financial stocks (Total External Assets + Total External Liabilities). The thickness of the lines between the nodes is proportional to the bilateral external financial stocks, relative to the nodes’ combined GDP, ie (Total External Assetsij + Total External Liabilitiesij)/(GDPi + GDPj).

Greater interconnectedness

Network of large exposures(a) between UK banks(b)(c)

Source: FSA returns.(a) A large exposure is one that exceeds 10% of a lending bank’s eligible capital during a period. Eligible capital is defined as Tier 1 plus Tier 2 capital,

minus regulatory deductions. (b) Each node represents a bank in the United Kingdom. The size of each node is scaled in proportion to the sum of (1) the total value of exposures to a

bank, and (2) the total value of exposures of the bank to others in the network. The thickness of a line is proportionate to the value of a single bilateral exposure.

(c) Based on 2008 Q1 data.

Greater interconnectedness

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Sum

1 JPMorgan 7% 8% 7% 8% 7% 15% 8% 13% 9% 6% 13% 12% 7% 8% 7% 11% 16% 16% 10% 7% 1932 Deutsche Bank 3% 6% 6% 3% 7% 6% 9% 4% 4% 2% 9% 11% 9% 11% 10% 8% 8% 11% 10% 14% 1493 Bank of America - Merrill Lynch 7% 9% 8% 11% 21% 15% 8% 21% 9% 9% 1174 RBS 6% 5% 5% 3% 6% 39% 11% 1% 11% 4% 9% 9% 12% 8% 9% 13% 1125 UBS 1% 5% 4% 3% 5% 1% 13% 1% 6% 7% 13% 13% 15% 14% 1006 Goldman Sachs 1% 4% 4% 3% 3% 2% 16% 7% 7% 7% 7% 8% 13% 8% 6% 977 Barclays 3% 8% 7% 13% 56% 9% 4% 1% 8% 2% 8% 8% 7% 7% 7% 928 Morgan Stanley 1% 4% 4% 5% 3% 1% 15% 13% 9% 5% 7% 14% 809 Citi 6% 6% 6% 6% 5% 10% 12% 9% 8% 7% 75

10 BNP Paribas 4% 3% 4% 1% 1% 3% 8% 11% 16% 16% 6611 Société Générale 2% 2% 2% 1% 1% 17% 18% 4412 Credit Suisse 2% 4% 4% 7% 9% 5% 1% 4% 1% 3713 HSBC 3% 4% 4% 2% 1% 2% 2% 1714 Wells Fargo - Wachovia 3% 1% 1% 1% 3% 1% 1% 1% 1115 Nomura 2% 2% 1% 3% 2% 1016 UniCredit 1% 2% 3% 1% 1% 2% 917 Mitsubishi UFJ 5% 1% 1% 1% 818 Mizuho 3% 2% 1% 1% 719 Evercore Partners 7% 720 Calyon 3% 1% 2% 1% 7

Herfindahl 0.025 0.041 0.037 0.034 0.090 0.464 0.081 0.087 0.118 0.048 0.032 0.043 0.046 0.050 0.046 0.049 0.059 0.057 0.076 0.077 0.086

DerivativesPrimary Markets M & A

Globalisation of financial activityBIS reporting banks’ cross-border claims(a)

Sources: BIS locational banking statistics by residence and World Bank World Development Indicators.

(a) Cross-border claims are the sums of cross-border assets and liabilities of all BIS reporting banks.(b) 2008 world GDP based on forecast by World Bank.

Greater complexityFinancial contracts

Structural changes in financial systems

• Larger banks => More economic impact

• More interconnected => Greater interactions

• More international => X-border spillovers

• More complexity => Extra data demands

Gaps exposed in this crisis

• Sources of risk? No“…low levels of risk premia and long-term interest rates, increased exposures to

complex and illiquid products, rising household sector indebtedness, and persistent or growing external and fiscal imbalances”

FSF, London meeting (September 2005).

• Propagation of shocks? Yes– Wide dispersion of risks

– …but uncertain incidence

– Strong interconnectedness between entities, including non-banks

– Criticality of market functioning

– Macroeconomic impact

Understanding financial networks: nodes

• Better information on key ‘nodes’:– More granular, timely, frequent bank disclosure – On/off balance sheet exposures– Liquidity risk profiles– Intra-period variation– Forward looking, risk focused information– Including all system critical nodes

Understanding financial networks: links

• Better information on ‘links’:– Enriched large exposures data– Tapping sources of data on market conditions– International efforts to improve ‘flow of funds’

data

Concluding thoughts

• Better data essential for effective macroprudential policy

• Structural change has outstripped data availability

• International dimension critical given cross-border interconnections

• Lessons from other disciplines?