Banking statistics as an input for euro area
monetary policy conduct: the institutional
framework and coping with financial innovation
Antonio Colangelo
European Central Bank, Directorate General Statistics,
Monetary & Financial Statistics Division
antonio.colangelo@ecb.europa.eu
1
Contents
0.
ESCB statistics
1.
Aim and scope of Monetary Financial Institutions (MFIs) balance
sheet statistics
2.
The statistical framework of monetary analysis
3.
Coping with financial innovation:
•
Securitisation
•
Central counterparties
2
Contents
0.
ESCB statistics
3
0. ESCB statistics (1)
ESCB functions:
• Define and implement monetary policy
• Conduct foreign exchange operations/hold and manage official foreign
reserves
• Promote smooth operation of payments systems
• Contribute to smooth conduct of policies relating to banking
supervision and stability of the financial system
– the latter is now complemented by the ECB analytical and statistical
support to the European Systemic Risk Board
4
0. ESCB statistics (2)
•
Each country has its statistics
• GDP
• population
• inflation
• money
• external balance, …
•
A monetary (and economic) union is a single economic entity
• common currency and monetary policy
• free movement of persons, goods and services, capital flows
• increasingly integrated (financial) markets
•
A monetary (and economic) union needs high quality statistics to
• assess the economic developments in the whole area
• base its forecasts
• assess the transmission of monetary policy decisions on the economy
• analyse and assess its financial stability
• support the conduct of other policies (e.g. financial integration)
5
0. ESCB statistics (3)
Is it not possible to simply add up national data?
• Even if and when national data are
– timely,
– at the same frequency and
– accurate enough…
• concepts and definitions may still diverge (following international standards
which may also need to be interpreted)
• some classifications differ, e.g. intra-transactions need to be classified as
“domestic” from the viewpoint of the monetary union and, thus, allocated to
SNA/ESA sectors – once asymmetry-free
• institutions of the monetary union (e.g. the ECB) are residents of the
union, but not of any country (even where they are located)
6
Contents
0.
ESCB statistics
•
Aim and scope of Monetary Financial Institutions (MFIs) balance
sheet statistics
7
1. Aim and scope of MFI balance sheet statistics (I)
ECB President Trichet at Press Conference 10 June 2010:
“… the annual growth rate of M3 was unchanged at -0.1% in April 2010.The annual
growth rate of loans to the private sector increased somewhat further and turned
positive, but remained weak at 0.1%.These data continue to support the assessment
that the underlying pace of monetary expansion is moderate and that inflationary
pressures over the medium term are contained.
The weak annual growth rate of bank loans to the private sector conceals that monthly
flows have now been positive for a number of months. At the same time, these
aggregate developments continue to reflect a strengthening in the annual growth of
loans to households, while the growth of loans to non-financial corporations
has remained negative. A lagged response of loans to non-financial corporations to
economic activity is a normal feature of the business cycle.”
8
1. Aim and scope of MFI balance sheet statistics (2)
Primary objective of price stability
Governing Council takes
monetary policy decisions based
on a unified overall assessment
of the risks to price stability
Monetary
analysis
Economic
analysis
Macroeconomic
projections
Analysis of
economic
dynamics and
shocks
Cross-checking
Analysis of money
and credit based on
MFI statistics
Full set of information
9
1. Aim and scope of MFI balance sheet statistics (3)
What is money?
Any definition of money is based on three crucial aspects:
1. Identification of monetary instruments
Financial assets that for their characteristics are – to a
certain degree - substitutes of currency
The nature and characteristics of financial assets and means of payment change
over time and differ across economics areas, hence the different definition of
monetary instruments used across central banks.
Financial instruments also differ by their degree of “liquidity”, i.e. their degree of
substitutability to banknotes in circulation, hence the definition (and monitoring) of
several monetary aggregates by central banks.
10
1. Aim and scope of MFI balance sheet statistics (4)
2. Definition of the money-issuing sector
Financial institutions that issue financial assets that are
included in the set of monetary instruments.
 Monetary Financial Institutions
3. Definition of the money-holding sector
Resident entities that hold these monetary instruments
and whose money disposal is of interest for the
transmission mechanism from interest rates to prices
11
1. Aim and scope of MFI balance sheet statistics (5)
M3 growth
12
1. Aim and scope of MFI balance sheet statistics (6)
M3 vs. credit developments
M3 (annual pct)
Loans to private sector (annual pct)
14
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13
Contents
0.
ESCB statistics
•
Aim and scope of Monetary Financial Institutions balance sheet
statistics
2.
The statistical framework of monetary analysis
14
2.The statistical framework of monetary analysis (1)
Monetary Financial Institutions (MFIs)
= financial institutions which together form the money-issuing
sector of the euro area
= central banks
+ resident credit institutions as defined in EU law
+ other resident financial institutions whose business is
- to receive deposits and/or close substitutes for deposits from entities
other than MFIs and,
- for their own account (at least in economic terms), to grant credits and/or
make investments in securities (the latter group consists predominantly of
money market funds)
15
2.The statistical framework of monetary analysis (2)
Number of MFIs as at end-December 2010
NCBs
Credit
institutions
Money Market
Funds
Other MFIs
Total
17+1
6334
1474
3
7828
Non participating EU
Member States
10
1875
154
53
2093
EU Total
28
8209
1628
56
9921
Euro area
16
2.The statistical framework of monetary analysis (3)
Statistical requirements for MFIs
–
Type of data: end-period stocks and flow adjustments
–
Frequency: Monthly for main balance sheet series,
Quarterly for more detailed breakdowns
–
Timeliness: data reported by NCBs to ECB on
15th working day after end of reference month, and
28th working day after end of reference quarter
(NCBs decide on timeliness for national reporting)
17
2.The statistical framework of monetary analysis (4)
Breakdowns collected for balance sheet items
A. Residency of counterpart
(domestic / other euro area / RoW)
B. Counterpart sector
(MFIs / Government / other financial institutions / insurance corporations
and pension funds/ non-financial corporations / households)
C. Instrument category
(under liabilities / assets)
D. Maturity bands
(original maturity, i.e. at issue, or period of notice)
E. Currency
(euro / other)
18
2.The statistical framework of monetary analysis (5)
Why to collect these breakdowns?
 Euro area monetary aggregates and counterparts
 Euro area MFI’s lending to euro area money holding sector
–
Residency of counterpart. Our focus is on the euro area
–
Counterpart sectors. To separately identify:
(i) Money issuing sector = MFIs
(ii) Money holding sector = Government excl. Central Gov., other
financial institutions, insurance corporations and pension funds, nonfinancial corporations, households
–
Instruments category. To identify M3 components and counterparts
–
Maturity bands. To identify short term (≤ 2 years) and
long term (>2 years) instruments
19
2.The statistical framework of monetary analysis (6)
Separately identify money issuing and money holding
sectors, for the purpose of deriving monetary aggregates
COUNTERPARTIES
ASSETS
A. Domestic residents /
B. Residents of the other euro area Member States
MFIs
Non-MFIs
General government
central government
state government
local government
social security funds
Other resident sectors
other financial intermediaries and financial auxiliaries
insurance corporations and pension funds
non-financial corporations
households and non-profit institutions serving households
C. Residents of the rest of the world
Banks
Non-banks
general government
other residents
D. Not allocated
LIABILITIES
A. Domestic residents /
B. Residents of the other euro area Member States
MFIs
of which credit institutinos
Non-MFIs
General government
central government
state government
local government
social security funds
Other resident sectors
other financial intermediaries and financial auxiliaries
insurance corporations and pension funds
non-financial corporations
households and non-profit institutions serving households
C. Residents of the rest of the world
Banks
Non-banks
general government
other residents
D. Not allocated
20
2.The statistical framework of monetary analysis (7)
Decomposition of the annual growth rate of
overnight deposits by sector
(annual flows, EUR bn)
21
2.The statistical framework of monetary analysis (8)
Decomposition of the annual growth rate of M3 by sector
(percentage point contribution)
22
2.The statistical framework of monetary analysis (9)
23
2.The statistical framework of monetary analysis (10)
Decomposition of the annual growth rate of M3 by instrument
(annual flows, EUR bn)
24
2.The statistical framework of monetary analysis (11)
MFI loans to households
–
In addition to the breakdown by counterpart sector and
original maturity (and currency)
–
Breakdown by purpose of the loan:
•
Consumer credit
•
Loans for house purchase
•
Other lending
 of which: loans to sole proprietors and unincorporated
partnerships
 Some new requirements are included in the BSI Regulation
ECB/2008/32
25
2.The statistical framework of monetary analysis (12)
Decomposition of the annual growth rate of loans to
non-financial sectors
(annual flows, EUR bn)
26
2.The statistical framework of monetary analysis (13)
Compilation of euro area aggregates at the ECB
Central bank balance sheets of
16 euro area Member States
ECB’s own
balance sheet
Aggregated balance sheet of
the Eurosystem
National aggregated balance sheets
of other MFIs for each of the 16
euro area Member States
Aggregated balance sheet of euro
area other MFIs
On a gross basis
Central government
deposit liabilities with a
monetary character (e.g.
post office accounts)
Monetary aggregates
and counterparts
On a gross basis
Aggregated balance
sheet of euro area MFIs
Netting of inter - MFI positions
Consolidated balance
sheet of euro area MFI
sector
Adjustment for non-euro area
holdings of short-term debt securities
issued by MFIs resident in DE, IE, NL
27
2.The statistical framework of monetary analysis (14)
Definition of the euro area monetary aggregates
Currency in circulation
Overnight deposits
Deposits with an agreed maturity of up to 2 years
Deposits redeemable at notice of up to 3 months
Repos
MMF Share/units
M1
M2
M3
x
x
x
x
x
x
x
x
x
x
x
x
x
Debt securities with a maturity of up to 2 years
An all currency concept is being followed, i.e. instruments in foreign currency are included
28
2.The statistical framework of monetary analysis (15)
Some alternative definitions of monetary aggregates
USA
M1 = currency + cheque deposits
M2 = M1 plus other deposits held by households
Euro area
M1 = Currency + overnight deposits
M2 = M1 + s-t deposits (2 years or redeemable in 3 months)
M3 = M2 + s-t securities issued by MFIs + money market mutual funds.
Japan
M1 = cash + demand deposits (commercial banks only)
M2 = M1 + time deposits + CDs (commercial banks only)
M3 = as for M2, but covering all deposit taking institutions
Thailand
M1 = Currency + on call deposits.
M2 = M1 + fixed and savings deposits
M3 = M2 + other funds from public e.g. promissory notes.
29
2.The statistical framework of monetary analysis (16)
Assets:
Liabilities:
•
Loans to euro area residents
•
Currency in circulation
•
Holdings of securities other than shares
issued by euro area residents
•
Short-term deposits of other general
government/ other euro area residents
•
Holdings of shares/other equity issued by
other euro area residents
•
Money market fund shares/units
•
Short term debt securities issued
•
Deposits of central government
•
Long-term debt securities
•
Long term deposits of other general
government/ other euro area residents
M3 =
•
Capital and reserves
Credit + NEA – CGD – LTFL + OA
•
External liabilities
•
Remaining liabilities
•
Excess of inter-MFI liabilities
•
External assets
•
Fixed assets
•
Remaining assets
30
2.The statistical framework of monetary analysis (17)
M3 and counterparts
(annual flows, EUR bn)
31
2.The statistical framework of monetary analysis (18)
Stocks, flows, indices and growth rates
•
Stock data refer to the last (working or calendar) day of the
period (month or quarter)
•
Flows for period t calculated as difference between stock at end
of period t and stock at the end of period t-1, adjusted for effects
that do not arise from transactions
•
Index of adjusted stocks derived from flows and used to
calculate growth rates
•
Growth rate over the n months ending in month t calculated
by dividing the index for month t by the index for month t - n
32
2.The statistical framework of monetary analysis (19)
Derivation of flows (transactions) by the ECB
Flow at time t for any balance sheet item is given by:
Ft  ( Lt  Lt 1 )  Ct  Vt  Et
Ft
= Flow
Lt
= Level at end of the period t
Lt-1 = Level at end of the period (t-1)
Ct
= Reclassification adjustment (reported by NCBs)
Vt
= Revaluation adjustment (reported by “other MFI”)
Et
= Exchange rate adjustment (calculated by ECB)
Ct , Vt , Et are "non-transactions-related" factors
33
2.The statistical framework of monetary analysis (20)
Seasonal adjustment
•
M3 components and counterparts, as included in press
release, are seasonally adjusted
•
Seasonal adjustment by the ECB also includes trading-day
adjustment as underlying series are end-of-month stocks
•
Method is X-12-ARIMA (U.S. Bureau of Census); for
internal purposes, TRAMO-SEATS (A. Maravall – Bank of
Spain) is also used
34
Contents
0.
ESCB statistics
•
Aim and scope of Monetary Financial Institutions (MFIs) balance
sheet statistics
•
The statistical framework of monetary analysis
1.
Coping with financial innovation:
•
Securitisation
•
Central counterparties
35
3. Coping with financial innovation (1)
(Traditional) securitisation:

An originator (e.g. a bank) pools a set of assets and sells them to a
financial vehicle corporation (FVC)

The FVC issues asset-backed securities (ABS) to investors, the
principal and interest of which depend on the cash flows produced
by the asset pool

The ABS are typically issued in different tranches of seniority
(priority in payment/loss absorption)

The FVC is usually set-up as a bankruptcy remote entity (the pool
of assets is beyond the reach of the originator’s creditors)
36
3. Coping with financial innovation (2)
Motives for securitisation:
 Financing especially during phases of large credit expansion (rates
usually lower than other sources)
 Risk diversification for both originators and investors
 Conversion of illiquid assets into marketable securities that can be used
in the repo market (including refinancing with the Eurosystem)
 Regulatory capital relief and/or capital arbitrage
 Flexibility in creating investment products for a wider investor base (e.g.
tranching)  enhanced revenues (arbitrage, fees, etc.)
 Moving of business to lighter regulated or unregulated entities (e.g.
ABCP conduits)
37
3. Coping with financial innovation (3)
(Among other needs) data on securitisation are needed to get
reliable interpretation of MFI credit data:
need to correct for negative financial
transactions when loans are securitised
and derecognised from the MFI
balance sheet!
Table 2.3 of the ECB Monthly
Bulletin

38
3. Coping with financial innovation (4)
Loans to the private sector
Loans to the private sector adjusted for securitisation
14
12
10
8
6
4
2
0
Jan.1999
-2
Jan.2001
Jan.2003
Jan.2005
Jan.2007
Jan.2009
Jan.2011
39
3. Coping with financial innovation (5)
Previous data was insufficient:
 non-harmonised definitions and compilation
approaches
 different availability and coverage among Member
States
 no sectoral detail available (NFC, household etc.)
New statistical Regulation (ECB/2008/30) to address
these limitations (among others)
 publication of new statistics from June 2011
40
3. Coping with financial innovation (6)
Central counterparties (CCPs):
 Financial institutions acting as intermediaries between
financial and money market participants – reduce
counterparty risk
 More and more active on the (secured) interbank
market:
Bank A  repo  Bank B
vs.
Bank A  repo  CCP  inverse repo  Bank B
41
3. Coping with financial innovation (7)
Impact on M3 and credit:
 CCPs are part of the money-holding sector; therefore:
 M3 is artificially inflated (repos are part of M3)
 Credit is artificially inflated (the MFI in the reverse
repo records a loan to an OFI)
42
3. Coping with financial innovation (8)
New requirements under Regulation ECB/2008/32 cope with
this problem:
Loans to O FIs - Stocks, EUR bn
Re pos with O FIs - Stocks, EUR bn
Gross
Gross
Corre c t e d for CCP s
400
1150
350
1100
300
Corre c t e d for CCP s
1050
250
1000
200
950
150
900
100
850
50
0
800
J un.2010 J ul.2010 Aug.2010 S e p.2010 Oc t .2010 Nov.2010 De c .2010 J a n.2011
J un.2010 J ul.2010 Aug.2010 S e p.2010 Oc t .2010 Nov.2010 De c .2010 J a n.2011
43
References
Regulation (EC) No 25/2009 of the ECB of 19 December 2008
concerning the balance sheet of the monetary financial institutions
sector (Recast) (ECB/2008/32):
http://www.ecb.europa.eu/ecb/legal/pdf/l_01520090120en00140062.pdf
Guideline of the ECB of 1 August 2007 on monetary, financial
institutions and markets statistics (recast) (ECB/2007/9) and
amendments:
http://www.ecb.europa.eu/ecb/legal/pdf/l_34120071227en00010232.pdf
http://www.ecb.europa.eu/ecb/legal/pdf/l_05320090226en00760091.pdf
http://www.ecb.europa.eu/ecb/legal/pdf/l_01620100121en00060047.pdf
Regulation (EC) No 24/2009 of the ECB of 19 December 2008
concerning statistics on the assets and liabilities of financial vehicle
corporations engaged in securitisation transactions
(ECB/2008/30):
http://www.ecb.europa.eu/ecb/legal/pdf/l_01520090120en00010013.pdf
44
Working for the ECB
Various job opportunities are available on the ECB website at:
http://www.ecb.europa.eu/ecb/jobs/html/index.en.html
The ECB Statistics Traineeship Programme is dedicated to
traineeships opportunity at the Directorate General Statistics of
the ECB; see:
http://www.ecb.europa.eu/ecb/jobs/apply/html/index.en.html
45
Further information
available on
www.ecb.europa.eu
46