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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 • • • Systemically important “80/20” approach Feasibility Financial Institutions Local FI Branch Local FI Local FI Reg’ FI Local FI Financial Institutions Branch Local FI Local FI Reg’ FI Local FI Local FI Branch Local FI Local FI Sub’ry Branch Branch Branch Local FI Reg’ FI Sub’ry Local FI Local FI Local FI Local FI Local FI Risk-Focused Approach Sub’ry Global FI Global FI Branch Global FI Branch Branch Systemically-important global financial institutions Sub’ry Local FI Local FI Branch Local FI Local FI Local FI Reg’ FI Sub’ry Branch Supervision of Global FIs HomeHost Colleges Home Home Sup’vr Global FI Branch Branch Host Sup’vr Host Sub’ry Branch Home Sup’vr Home Sup’vr Global FI Global FI Sub’ry Host Sup’vr Branch Sub’ry Branch Host Sup’vr Branch Data Gaps HomeHost Colleges Enhance Home Home Sup’vr Aggregated Global FI Branch Branch Host Sup’vr Host Overview Sub’ry Branch Home Sup’vr Home Sup’vr Global FI Global FI Sub’ry Host Sup’vr Branch Sub’ry Branch Host Sup’vr Branch 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 Branch Branch Sub’ry Host Sup’vr Host Sup’vr Host Sup’vr Aggregated Overview Home Sup’vr Global FI Aggregated Overview Home Sup’vr Home Sup’vr Global FI Global FI 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 Branch Sub’ry Host Sup’vr Branch Sub’ry Branch Branch • 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 Home Sup’vr 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 FI Global FI – 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 Home Sup’vr Home Sup’vr Aggregated Home Overview Sup’vr • Proprietary risks Aggregated Overview • System focused Global FI HomeHost College Global FI Global FI • Market-wide risks Financial Markets Markets Risk-Focused Approach “Bang for the buck” PRIORITY Large ACTIONABLE • • • • • Credit Default Swaps Collateralised Debt Obligations Collateralised Loan Obligations Currency options Forward Rate Agreements • • • Small No exchange, clearinghouse or central settlement system • • 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 Home Sup’vr Home Sup’vr Aggregated Home Overview Sup’vr Global FI Global FI Global FI 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 • • • International organisations, supervisors, market infrastructure Data collection is a means; policy co-ordination to be effective Do not inadvertantly impede cross-border capital flows