Systemic Indicators: Developing Inputs on System-Wide Risks for Financial Stability
Systemic Indicators: Developing Inputs on
System-Wide Risks for Financial Stability and Macroprudential Policy
Charles Enoch
Deputy Director
Statistics Department, IMF
July 9, 2009
Financial Soundness Indicators:
Introduction
FSIs intended as summary indicators of the financial soundness of institutions and markets in an economy.
Analysis of FSIs would therefore complement other assessments of soundness, such as early warning indicators and macroeconomic vulnerability exercises.
Multiple FSIs: evolving views on definitions, coverage, and measurement.
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Financial Soundness Indicators: Legacy of Earlier Crises
Conclusion from 1994 Mexican crisis that data partly responsible.
Further focus on data after Asian crisis.
Development of data standards
(SDDS and GDDS).
Recognition of gap between monetary data and microprudential information —focus on
“macroprudential indicators” (MPIs).
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Initial Usage of FSIs
Introduction of FSAPs.
Need for broad set of indicators used for strengthened surveillance: MPIs comprising aggregated prudential indicators.
Consultative meeting on
Macroprudential Indicators held at IMF
HQ September 1999.
Redesignation of MPIs as FSIs after
2001 IMF Board meeting (others, such as ECB, still use MPI terminology).
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Survey and Selection
Surveys of member countries on availability and usefulness of potential
MPIs.
122 responses (covering 142 countries and jurisdictions); all covered user questionnaire, two-thirds the compilation and dissemination questionnaire.
IMF Board endorsed list (slightly modified in 2004) that comprises 15 core and 26 encouraged indicators.
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Choice of Indicators
Issue of coordination across agencies.
Limited resources available for exercise.
Parsimony.
Reflecting prudential practices, CAMEL framework underpinned structure.
Recognition this was initial list.
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Choice of Indicators (2)
Focus on core markets and institutions.
Analytical significance.
Revealed usefulness through high scores in the 2000 survey results.
Relevant in most circumstances.
Availability.
Compilation Guide drafted 2002-2004
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Core Indicators
Regulatory capital to risk weighted assets.
Regulatory tier 1 capital to risk weighted assets.
Nonperforming loans net of provisions to capital.
Nonperforming loans to total gross loans.
Sectoral distribution of loans to total loans.
Return on assets.
Return on equity.
Interest margin to gross income.
Noninterest expenses to gross income.
Liquid assets to total assets.
Liquid assets to short-term liabilities.
Net open position in foreign exchange to capital.
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Encouraged Indicators:
Encouraged FSIs for Deposit Takers
Capital to assets.
Geographical distribution of loans to total loans.
Gross asset positions in financial derivatives to capital.
Gross liability positions in financial derivatives to capital.
Trading income to total income.
Personnel expenses to noninterest expenses.
Spread between reference rates and deposit rates.
Spread between highest and lowest interest rates.
Customer deposits to total noninterbank loans.
Foreign currency denominated loans to total loans.
Foreign currency denominated liabilities to total liabilities.
Net open position in equities to capital.
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Encouraged Indicators:
OFCs (2) and NFCs (5)
Assets to total financial system assets.
Assets to GDP.
Total debt to equity.
Return on equity.
Earnings to interest and principal expenses.
Net foreign exchange exposure to equity.
Number of applications for protection from creditors.
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Encouraged Indicators
Household (2), Market Liquidity (2), Real Estate (4)
Household debt to GDP.
Household debt service and principal payments to GDP.
Average bid-ask spread in securities markets.
Average daily turnover ratio in the securities market.
Residential real estate prices.
Commercial real estate prices.
Residential real estate loans to total loans.
Commercial real estate loans to total loans.
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Coordinated Compilation Exercise
62 countries invited to participate in Coordinated
Compilation Exercise (CCE), modeled on
CPIs —essentially the countries in SDDS.
52 have committed to supply data and metadata.
First data points to be disseminated by end-July, with metadata, with commitment to maintain dissemination.
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July 2009 Dissemination (1)
Expectation data for around 25-35 countries will be disseminated; more
(and more metadata) to follow. (Around seven countries disseminate more than one data point.)
7-14 G20 countries expected to be among disseminators.
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July 2009 Dissemination (2)
Nearly all countries disseminating will disseminate all the core indicators.
Around six countries will disseminate at least around 20 encouraged indicators, over half at least 10 encouraged indicators.
Around half will disseminate quarterly, one semi-annually, the rest annually.
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Results of the CCE
Major efforts put into preparation of data and metadata in many countries.
Institutional arrangements put in place in many countries for interagency coordination.
Significant progress in understanding issues and moving towards harmonization, e.g., as regards consolidation.
Resource intensity of exercise has constrained e.g., countries’ willingness to construct past data.
Over time, time series will be generated for an increasing number of countries.
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Issues Concerning FSIs
Periodicity —crisis shows importance of high frequency.
Heavy concentration of indicators on banks, especially in core indicators.
Aggregate figures hide variations in dispersion.
Lack of time series impedes analysis and empirical testing.
Questions whether (and which) existing FSIs
“predicted” the present crisis.
Lack of clear “critical points” that would indicate problems.
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Going Forward (1)
Review of FSIs to possibly rebalance between core and encouraged categories.
Increasing focus, for instance, on leverage ratios rather than capital as lead indicator of problems.
Increasing focus beyond the on-balance-sheet activities of commercial banks.
Recognition of real estate prices as key indicator of emerging problems.
Further focus also on balance sheet data and systemic risks.
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Going Forward (2)
Revisions to, and increasing harmonization of, regulatory framework (especially in Europe), will lead towards international convergence in calculation of
FSIs, might also complicate creation of consistent time series .
Present crisis may lead to added commitment at national level to devote resources to FSIs and other crisis-related statistics; could permit broadening in range of FSIs.
Continued collaboration needed between statistical and financial experts.
Any revision to IMF core and encouraged indicators needs approval of IMF Board.
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FSIs and SDDS
In December 2008 IMF Executive
Board invited staff to return within a year with work program to identify
FSIs (and other financial indicators) for inclusion into SDDS on an encouraged basis.
If accepted, would represent significant enhancement to SDDS.
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Feedback Requested...
Revisions and refinements to FSIs require feedback from users, to complement the ongoing in-house analytical and operational work.
Thank you
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