Download Risk-Focused Approach Systemically-important global

Session 3: Cross-Border Financial
Positions and Exposures
What data do we need to form a better picture of
cross-border exposures, including among
financial institutions and financial systems, and
external debt obligations?
Cross Border Risks
Institutions
• Risk-bearing
• Policy actions ultimately
taken at institution level
• Types of risk:
– Maturity mismatches
– Currency mismatches
– Open positions
Markets
• Risk-matching
• Focus on transparency to
identify collective risks
• Types of risk:
– Counterparty risk
– One-way market
positioning
– Liquidity
Risk Focused Approach
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Systemically important
“80/20” approach
Feasibility
Financial Institutions
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Financial Institutions
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Risk-Focused Approach
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Systemically-important
global financial
institutions
Sub’ry
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Reg’
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Supervision of Global FIs
HomeHost
Colleges
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Data Gaps
HomeHost
Colleges
 Enhance
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Aggregated
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Host
Sup’vr
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Overview
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Enhancing Home-Host Co-operation
Current Framework
Dated Information
•Capital ratios
•NPL ratios
•LTD ratios
•Headoffice funds
•Liquidity profile
•Quarterly results
Public Sources
•News
•Ratings actions
•Analyst reports
•Credit default
spreads
Home
Sup’vr
Global
FI
Supervisory Colleges
•When invited only
Proposed Template
•Group-level ALM •VAR
(global funding
concentration
model)
•Trade finance,
•Capital and
e.g. bills, LCs
sources of capital •Counterparty
•Intragroup
concentration
exposures
•Stress test results
•Group exposure •Off balance sheet
to unregulated
items
entities
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Sub’ry
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Aggregated Overview
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Aggregated
Overview
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Shock Identification
Transmission Channels
Sources of disturbances to
major financial systems
Interbank and portfolio capital
flows:
Branch
Branchprofiles
Sub’ry
• NPLs, funding
• Credit conditions
• Concentrated exposures
• Holdings of securities and loan
exposures
e.g. property,
Hostcorporate (size,
rating), consumer, securities
Sup’vr
(rating, maturity), trading assets
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• Consolidated
cross-border
interbank exposures (each other)
• Banking exposures to non-bank
FIs, e.g. insurers, hedge funds
• Greater disclosure of hedge fund
terms of funding, leverage,
Host etc.
Sup’vr
Proposed Monitoring Framework
Policy action feedback loop
Framework
International Financial Institution
Aggregate systemicallyimportant global FIs
Home
Sup’vr
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Aggregated
Home Overview
Sup’vr
• Home supervisors
– Submit common data
template
• IFI
– Aggregates and
analyses data
– Identifies collective
risks
– Publishes
assessment
• Feedback loop
Global
FI
HomeHost
College
Global
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Global
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– Supervisors check
individual institution
risk against collective
risks
– Supervisors
undertake policy
action if necessary
Proposed Monitoring Framework
Policy action feedback loop
International Financial Institution
Aggregate systemicallyimportant global FIs
Delineation of
Focus Areas
Home-Host Colleges
• Institution focused
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Aggregated
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• Proprietary risks
Aggregated Overview
• System focused
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• Market-wide risks
Financial Markets
Markets
Risk-Focused Approach
“Bang for the buck”
PRIORITY
Large
ACTIONABLE
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Credit Default Swaps
Collateralised Debt Obligations
Collateralised Loan Obligations
Currency options
Forward Rate Agreements
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Small
No exchange, clearinghouse
or central settlement system
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Interest rate swaps
Interest rate options
LOW HANGING FRUIT
Index options
Equity options
Commodities and environment
Substantially on exchange, clearinghouse
or central settlement system
Market Infrastructure
Risks
• Systemicallyimportant
counterparties
• One-way market
positioning
• Cross-border
contagion
• Liquidity
Indicators
• Top volume
– Counterparties
– Contracts and
reference names
– Open interest
– Jurisdiction
• Amount of assets on
loan
• Settlement failures
• Turnover volume
• Collateral types and
haircuts
Unified Framework
Proposed Monitoring Framework
Policy action feedback loop
International Financial
International
Institution
Financial Institution
Cross-Check Systemic Risks
INSTITUTIONS
MARKETS
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Aggregated
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Overview
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Global
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HomeHost
College
Exch
Clear’
house
SSS
Market
Market
Market
Way Forward
Institutions
Markets
• Identify systemicallyimportant FIs and criteria
• Build common data
template for home-host
co-operation on
systemically-important FIs
• Aggregate common
indicators and analyse
common risks to
systemically-important FIs
• Identify systemicallyimportant markets and
central infrastructure
• Build template of
indicators of different
market risks
• Migrate systemicallyimportant OTC markets to
exchanges and
clearinghouses
Pillars of Co-operation
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International organisations, supervisors, market infrastructure
Data collection is a means; policy co-ordination to be effective
Do not inadvertantly impede cross-border capital flows