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STD/NAES/FA(2003)4
Organisation de Coopération et de Développement Economiques
Organisation for Economic Co-operation and Development
11-Sep-2003
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English - Or. English
STATISTICS DIRECTORATE
STD/NAES/FA(2003)4
For Official Use
National Accounts and Economic Statistics - Financial Accounts
THE USE OF FINANCIAL ACCOUNTS IN ASSESSING FINANCIAL STABILITY
Paper prepared by R. Mink and N. Silva, Directorate General Statistics - ECB
OECD WORKING PARTY ON FINANCIAL STATISTICS
Château de la Muette, Paris
6-7 October 2003
Beginning at 9:30 a.m. on the first day
English - Or. English
JT00148931
Document complet disponible sur OLIS dans son format d'origine
Complete document available on OLIS in its original format
STD/NAES/FA(2003)4
THE USE OF FINANCIAL ACCOUNTS IN ASSESSING FINANCIAL STABILITY1
1.
Introduction
The financial crisis in Asia in the late 1990s has highlighted the importance of identifying potential
sources of financial risk and alternative approaches for assessing the vulnerabilities of national economies
as well as of specific institutional sectors within national economies. It also stimulated detailed research on
threats to macroeconomic financial stability in addition to microeconomic analyses in the context of
financial supervision.
Since its creation in June 1998, the European Central Bank (ECB) has been involved via the European
System of Central Banks’ (ESCB) Banking Supervision Committee (BSC) in the assessment of financial
stability in the European Union, either from a euro area-wide or from an EU country perspective. Various
reports have already been produced by the BSC on this subject2, mainly based on data taken from balance
sheet statistics of monetary financial institutions (MFI) or from corresponding statistics of available
supervisory reports. One of the deficiencies mentioned in the reports was that the assessment of financial
stability is based on rather incomplete and non-harmonised sets of financial data for the EU countries and
for the euro area as a whole. This refers specifically to data for non-monetary financial institutions, but also
applies to data for non-financial corporations and households.
Quarterly Monetary Union financial accounts (MUFA) provide a comprehensive set of financial data
for the euro area and its main institutional sectors. Based on such euro area data, comparable sets of
accounts can be provided for the euro area and the pre-in countries to assess financial stability. Quarterly
MUFA as a framework within the System of National Accounts (SNA 93) focus on the compilation and
analysis of financial flows between/ and stocks of/ the various sectors of the euro area economy.
Quarterly MUFA are still under construction at the ECB with the aim of increasing the coverage of
sectors and financial instruments. However, the quarterly Tables on Financing and Investment (TFIs) of
euro area non-financial sectors and of insurance corporations and pension funds already provide detailed
information on financial transactions and balance sheets. They are used to evaluate the financial soundness
of these sectors, for instance by assessing their degree of indebtedness.
The paper is organised as follows. Section two describes the methodological framework of the system
of quarterly MUFA in the context of financial stability analysis, while Section three outlines the
developments instigated by the ECB on macro-prudential analysis and financial supervision. Section four
presents the work on quarterly MUFA currently being undertaken by the ECB and provides an outlook on
how to use quarterly MUFA for purposes of financial stability analysis in the future. Finally, Section five
makes some concluding remarks.
1
The views expressed in this paper are not necessarily those of the ECB.
2
The reports are described in Section three.
2
STD/NAES/FA(2003)4
2.
Quarterly Monetary Union financial accounts related to financial stability analysis
2.1. The methodological framework of quarterly Monetary Union financial accounts
There are essentially six conceptual elements in the design of a system of quarterly MUFA: its
integration into the SNA 93 or into its European twin, the European System of Accounts (ESA 95); the
selection of financial assets and liabilities; the breakdown of the economy into institutional sectors; the
market valuation criterion; the accrual accounting principle; and the focus on the original maturity
breakdown of financial assets.
The ESA 95 records flows and balance sheets in a sequential set of accounts describing the economic
cycle from the generation of income through its distribution and redistribution and then finally to its
accumulation in the form of assets. Flows are described as events that “create, transform, exchange,
transfer or extinguish economic value”. The flows of the generation, distribution and redistribution of
income and its use in the form of final consumption are shown in the “current accounts”.
A second group of flow accounts, the “accumulation accounts”, records the various changes in the
assets and liabilities of the institutional units grouped into sectors and the change in their net worth, the
difference between assets and liabilities. The stocks of assets and liabilities constitute the “balance sheet
accounts.” The accumulation accounts comprise the “capital account” (transactions in non-financial assets)
the “financial transaction account”, the “other changes in volume of assets account” and the “revaluation
account”.
Table 1
Components of the system of quarterly Monetary Union financial accounts
1) Flow accounts (changes in financial assets and liabilities owing to transactions and other flows)
a) Financial transaction account
b) Other changes in the volume of assets account
c) Revaluation account
2) Financial balance sheets (outstanding amounts of financial assets and liabilities)
Financial accounts, as defined in the context of quarterly MUFA, cover the financial transaction
account and the financial balance sheets account as well as the corresponding other changes in the volume
of assets and the revaluation account as shown in Table 1.
Seven categories of financial assets or financial instruments are distinguished in the ESA 95. They are
classified according to liquidity factors and legal characteristics (Table 2). Provision is also made for a
further split of the list of financial assets, in particular according to maturity and market capacity.3
3
In the context of financial stability, it would be an advantage to have an aggregation of instruments based on risk
considerations.
3
STD/NAES/FA(2003)4
Table 2
Classification of financial assets according to the ESA 95
Monetary gold and special drawing rights (F.1)
Currency and deposits (F.2)
Currency (F.21)
Transferable deposits (F.22)
Other deposits (F.29)
Securities other than shares (F.3)
Securities other than shares, excluding financial derivatives (F.33)
Short-term (F.331)
Long-term (F.332)
Financial derivatives (F.34)
Loans (F.4)
Short-term (F.41)
Long-term (F.42)
Shares and other equity (F.5)
Shares and other equity, excluding mutual funds shares (F.51)
Quoted shares (F.511)
Unquoted shares (F.512)
Other equity (F.513)
Mutual fund shares (F.52)
Insurance technical reserves (F.6)
Net equity of households in life insurance reserves and in pension funds reserves (F.61)
Prepayments of insurance premiums and reserves for outstanding claims (F.62)
Other accounts receivable/payable (F.7)
Trade credits and advances (F.71)
Other (F.79)
ESA 95 codes in brackets.
In addition to the financial assets, balance sheets also comprise non-financial assets, which in turn can
be broken down into produced and non-produced assets. Net worth is calculated as the difference between
all assets (produced, non-produced and financial assets) and liabilities. Net worth has to be distinguished
from net financial assets, which is defined as the difference between the stock of financial assets and
liabilities.
The scope of an economy (the residency concept) or an economic area underlying the compilation of
the system of accounts in the ESA 95 is based on the notion of a centre of economic interest. All
institutional units that “have a centre of economic interest on the economic territory” should be considered
residents. The ESA 95 groups the resident institutional units of an economy into five sectors according to
their type of economic behaviour: non-financial corporations, financial corporations, general government,
households, and non-profit institutions serving households. Most of the sectors may be further broken
down by sub-sector. Financial corporations, for example, can be broken down into the central bank, other
monetary financial institutions, other financial intermediaries (except insurance corporations and pension
funds), financial auxiliaries, and insurance corporations and pension funds. The same applies for general
government and for the rest of the world sector, which covers all cross-border flows and positions (see
Table 3).
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Table 3
Classification of an economy by institutional sector and sub-sector according to the ESA 95
Non-financial corporations (S.11)
Financial corporations (S.12)
Central bank (S.121)
Other monetary financial institutions (S.122)
Other financial intermediaries, except insurance corporations and pension funds (OFIs)
(S.123)
Financial auxiliaries (S.124)
Insurance corporations and pension funds (S.125)
General government (S.13)
Central government (S.1311)
State government (S.1312)
Local government (S.1313)
Social security funds (S.1314)
Households (S.14)
Non-profit institutions serving households (S.15)
Rest of the world (S.2)
The European Union (S.21)
Third countries and international organisations (S.22)
ESA 95 codes in brackets.
Following ESA 95 principles, flows and stocks should be recorded at exchange value, i.e. the value at
which the financial assets are or can be created, liquidated, exchanged or assumed between institutional
units. Thus the ESA 95 recommends market prices as a general reference for valuation, especially when
the exchange is made or can be made through a market. A transaction is generally recorded when the value
is created, liquidated, exchanged or assumed, and not, for example, when the payment is made, thus
following the accrual principle. Furthermore, the components of the balance sheets and of their associated
flow accounts are shown in gross terms, without netting liabilities against assets and/or inter-sector
positions.
The original maturity split – short versus long-term – is normally based on a one-year cut-off and, in
exceptional cases, on a two-year cut-off. Short-term financial assets are those with an original maturity of
up to one year and, in exceptional cases, of up to a maximum of two years, while long-term financial assets
are those with an original maturity of more than one year and, in exceptional cases, of more than two years
as a minimum.4
To compile quarterly MUFA, further amendments have to be made, as the classification of sectors as
shown in Table 3 is seen from a national economy viewpoint. Modifications refer, for example, to the
financial corporations sector, in which the ECB has to be included. Furthermore, detailed data have to be
made available for the cross-border flows and positions to allow the compilation of a euro area rest of the
world account.
2.2. Conceptual elements of financial stability analysis
Financial stability as understood by the ECB means “a condition whereby the financial system is able
to withstand shocks without giving way to cumulative processes, which impair the allocation of savings to
investment opportunities and the processing of payments in the economy”.5 Therefore, the definition of
4
These and other methodological issues are discussed in more detail in Section 2.3 – Methodological issues.
5
See Padoa-Schioppa (2003).
5
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financial stability is not only confined to banking stability, but actually refers to the whole financial
system, whereby the financial stability of the banking sector is crucial for the soundness of financial
corporations.
To successfully safeguard financial stability, the vulnerabilities of the financial sector and, as their
counterpart, the non-financial sectors should be effectively identified and monitored, as well as the
potential shocks to (financial and non-financial) markets. Typically, economists refer to this as macroprudential analysis or surveillance. Such activities are usually part of the core competencies of central
banks to promote financial stability and sound payment systems. These activities differ from financial
supervision activities, as they are primarily focused on factors that may pose risks to the economy as a
whole, with significant macroeconomic repercussions.
The measures of financial soundness and the methods to analyse them are usually called macroprudential indicators (MPIs)6 and analysis, respectively. MPIs “are indicators compiled to monitor the
health and soundness of financial institutions and markets, and of their corporate and household
counterparts”. Such indicators “include both aggregated information on financial institutions and indicators
that are representative of markets in which financial institutions operate” as well as “other indicators that
support the assessment and monitoring of the strengths and vulnerabilities of financial systems, notably
macroeconomic indicators”.7
Therefore, macro-prudential analysis may be defined as the “assessment and monitoring of the
strengths and vulnerabilities of financial systems. It encompasses quantitative information from both MPIs
and indicators that provide a broader picture of economic and financial circumstances, such as GDP
growth and inflation, along with information on the structure of the financial system, qualitative
information on the institutional and regulatory framework – particularly through assessments of
compliance with the international financial sector standards and codes – and the outcome of stress tests”, as
well as scenario analysis to determine the sensitivity of the financial system to macroeconomic shocks.
As indicated in Chart 1, financial accounts play a major role in the compilation of certain MPIs – such
as debt-to-GDP ratios and the financial health of the non-financial sectors – as well as in structural
analysis, including the importance of the main instruments, ownership structure and concentration.
Taking into account the complexity of the global financial system, there is no single indicator that can
be used to assess whether a financial system is stable or not. Instead, a wide array of concepts need to be
considered when attempting to form an overall picture of the health of a financial system. Ideally, MPIs are
based on long time series, enabling general trends that are believed to be key measures of the health of a
financial system to be identified. They are then used to highlight sudden movements away from these
trends, rather than necessarily the magnitude or direction of the change.
6
n the context of the IMF, these indicators are named Financial Soundness Indicators (FSIs).
7
ee Sundararajan, V. and others (2002).
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Chart 1
Components of macro-prudential analysis
MPIs
Financial
accounts
STRESS
TESTS
Macroeconomic
data
(prices, interest and
exchange rates)
Macro-prudential
analysis
Qualitative
information
(compliance with
standards)
Financial
accounts
Market-based data
(stock prices, credit
ratings)
Structural
information
(relative size,
ownership of
corporations)
Source: Sundararajan, V. and others (2002) – adapted.
The range of MPIs that should be followed and analysed depends very much on the characteristics of
the country or of the economic area; however, their coverage typically follows the CAMELS framework
(capital adequacy, asset quality, management soundness, earnings, liquidity, sensitivity to market risk).8
After selecting the correct set of MPIs, it is important to discuss methods of analysing them. A variety of
methods are available for deriving conclusions from MPIs about the stability of the financial sector – from
a simple ratio analysis to more complex macro and microeconomic modelling. In recent years, the
importance of stress testing has been growing in the context of its potential application to the analysis of
strengths and vulnerabilities at the level of the aggregated system, as opposed to the individual institutions
(for which it was originally developed). Stress tests add a dynamic element to the analysis of MPIs. They
refer to the sensitivity, or probability distribution, of MPIs’ outcomes in response to a variety of
(macroeconomic) shocks and scenarios.
Another concept that is usually associated with financial stability is peer group analysis. A peer group
is a statistical set of individual institutions that have been grouped on the basis of specific analytically
interesting criteria. A wide variety of meaningful peer groups can be created for comparison purposes and
for the examination of the dispersion and concentration of the institutions in that group. Examples of
criteria for creating peer groups are the size of assets or revenues, the type of activity (e.g. universal
banking and investment banking), the type of ownership (public or private), the region of the economy (by
country in the case of the euro area), and so on.
8
or a detailed analysis of current country practices, see Sundararajan and others (2002). For a collection of views
on the relevant MPIs according to country particularities, please refer to the papers published in the IFC Bulletin,
issues No 9 and 12.
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2.3. Methodological differences between financial accounts and indicators underlying financial
stability analysis
Several methodological differences between financial accounts and indicators underlying financial
stability analysis have to be taken into account when using both data sets in parallel for the assessment of
financial stability.9 Specifically, it has to taken into account which underlying methodological concepts are
used. This refers specifically to the residency criterion, the applied methods of aggregation and
consolidation, and the valuation of balance sheet components. Furthermore, the time of recording in the
context of accrual accounting and the maturity definitions used are of utmost importance if financial
accounts data are taken together with aggregated micro-prudential data, which are mainly derived from
supervisory reports and are a useful measure of certain banking sector risks.10
The analysis of the MPIs is highly influenced by whether the underlying data are consolidated or not.
Accordingly, special attention should be given to the method used to consolidate specific MPIs. For the
time being, no single method is used for this consolidation process because of country-specific needs for
analysis.
In compiling MPIs it is recommended, specifically for the banking sector, to use data collected on a
‘consolidated reporting’ or ‘home’ basis. This means that the data cover not only the business of the
reporting institution, but also the business of its branches and subsidiaries. Such branches or subsidiaries
might be resident or non-resident in the economy, with the consequence that all transactions between these
entities and their positions are eliminated by consolidation.11 In essence, consolidation is based on the
concept of control by a parent enterprise over the other operating units.
Such an approach, i.e. of consolidation on a home basis, is essential in monitoring the integrity of
capital in the banking sector as it eliminates double counting.12 By contrast, the collection systems used for
financial statistics, such as the MFI balance sheets statistics, are based on the so-called ‘host-country’
principle, in which reporting institutions provide data only on their business, without consolidating the
activities of their branches and subsidiaries, whether resident or non-resident. In any case, such branches
and subsidiaries are treated as ‘autonomous’ institutional units that are part of the reporting population of
the country in which they are located.
Regarding valuation concepts, the data used to compile MPIs may also differ from the concepts
underlying quarterly MUFA. As outlined above, the ESA 95 recommends measuring transactions and
stocks “according to their exchange value, i.e. the value at which flows and stocks are in fact, or could be,
exchanged for cash. Market price is thus ESA’s basic reference for valuation”. As for MPIs, the draft IMF
Compilation Guide on Financial Soundness Indicators advocates that the valuation should be based on the
“most realistic assessment at any point in time of the value of the variable”. Therefore, market values
should be used for traded securities and shares, whereas nominal values are preferred for non-traded
instruments. This proposal diverges from the ESA 95 and also from the proposed International Accounting
Standards (IAS), which in principle advocate the application of fair value.
9
See Sahel (2001) and the IMF’s “Compilation Guide on Financial Soundness Indicators” (draft March 2003).
10
See the papers on financial stability published in the IFC Bulletin, issue No 9 for a review of the problems faced
by the UK, Hong Kong, and the BIS and the IMF. For a description of the approach of the ECB in the integration
of macroeconomic and prudential information in the compilation of MPIs see Grande, M. and Stubbe, M. (2002).
11
See the IMF’s “Compilation Guide on Financial Soundness Indicators” (draft March 2003) for a comprehensive
review of the issues of consolidation reporting.
12
See the Basel Committee on Banking Supervision on the “Core principles for effective banking supervision”
(1997).
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Concerning the applied maturity concepts, quarterly MUFA and MPIs may also experience different
requirements. While quarterly MUFA and monetary statistics used for ECB monetary policy analysis refer
mainly to financial data with a split by original maturity, which provides a good basis for liquidity analysis,
macro-prudential analysis often primarily looks at imbalances between assets and liabilities, requiring data
to be broken down by residual maturity.13 Yet another approach refers to the calculation of the ‘duration’
of assets and liabilities, which is the weighted average maturity of a financial instrument.
2.4. Use of quarterly Monetary Union financial accounts for financial stability analysis
Quarterly MUFA are a powerful instrument for achieving consistency in high-frequency financial
data provided by money and banking, balance of payments, capital market, and government finance
statistics. Therefore, using such accounts for the purpose of financial stability analysis would also lead to
an improvement in the quality of the MPIs underlying the analysis.
A comprehensive set of quarterly financial accounts for the euro area is being developed by the ECB,
primarily for the purpose of monetary policy analysis.14 However, these data may also be used to support
financial stability analysis. This mainly involves the derivation of MPIs taken from the financial balance
sheets and the financial transaction accounts of the various non-financial sectors.15 A table showing
financial assets and liabilities and their changes (see Annex 1) may indicate mismatches between both.
Such developments may have important consequences for the cost and the availability of the various
sources of financing and, in turn, have an impact on non-financial investment and on household
consumption. Currently, this table can only be compiled annually for twelve EU countries (not including
Greece, Ireland and Luxembourg).16
The soundness of the banking system depends crucially on the sustainability of the level of corporate
and household debt. Indebtedness, the leverage of corporations and “income-based financial fragility
indicators” are recognised as key leading indicators in identifying financial distress.17 In combination with
credit growth, external (non-deposit) funding of banks and asset prices (complemented with data from the
revaluation account) could help to detect dangerous economy-wide leverage. Using currently available
data, these indicators may only be comprehensively compiled on a yearly basis. However, quarterly data
are available on debt as a percentage of GDP and of gross disposable income for the non-financial sectors
and, as a proxy for the leverage ratio, debt as a percentage of quoted shares.
The presentation of quarterly MUFA as an integrated system, and specifically in the context of a whoto-whom analysis, facilitates the assessment of the financial transactions and other flows between the
various sectors as well as their financial positions vis-à-vis other sectors. It highlights potential risks
related to concentrations in specific sources of financing and in components of financial investment by
instrument, maturity, and counterpart sector. For instance, there might be a concentration in lending to the
household sector or in short-term debt, which may cause liquidity concerns. Quarterly MUFA also reveal
specific developments of financial innovations and their implications. For example, “securitisation
operations” are often captured by an increase in both the amount of debt securities issued by corporations
13
Residual maturity is defined as the time until redemption.
14
See Mink, R. (2002) for a description of quarterly Monetary Union financial accounts for the purpose of ECB
monetary policy analysis; and Jellema, T., Steven, K., McAdam, P. and Mink, R. (forthcoming) for the
development of a euro area accounting matrix and its relevance for ECB monetary policy analysis.
15
See Begun, J. (forthcoming) for a description of the usefulness of sectoral balance sheets in macro-prudential
analysis.
16
A few countries already compile a comprehensive set of quarterly financial accounts (BE, ES and UK).
17
See Jaeger, A. (2003) on corporate balance sheet restructuring and investment in the euro area.
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and the loans granted by specific financial intermediaries. A limited view of the euro area (focusing only
on the MFI sector) might lose track of the amount of loans channelled to such financial intermediaries, i.e.
to Special Purpose Vehicles (SPVs).
Finally, the integrated approach of quarterly MUFA also allows its expansion by additionally
covering the relationships with variables included in the ‘non-financial’ part of the system. Variables such
as GDP, income, saving and investment, or the net operating surplus favours its use in “stress testing” and
scenario analysis.
3.
Macro-prudential analysis and financial supervision at the ECB
According to Article 3.3 of their Statute, the ESCB and the ECB shall “contribute to the smooth
conduct of policies pursued by the competent authorities relating to the prudential supervision of credit
institutions and the stability of the financial system”. To pursue this task, the ESCB set up the BSC in
1998, which is responsible for the co-ordination of all the tasks related to macro-prudential analysis and
financial supervision within the ESCB.
The main regular outputs of the BSC are 1) an annual macro-prudential report on the EU banking
system; 2) an annual report on the structural developments of the EU banking system; and 3) the BSC
contribution to the biannual “Financial Stability Review” (FSR) prepared by the ECB under the aegis of its
Directorate Financial Supervision and Stability (D-FS). The first two reports are available in an edited
version.18
The annual macro-prudential report on the EU banking system aims first at detecting and monitoring
vulnerabilities in the financial system, and second at increasing the understanding of trends in the financial
system and the links between macroeconomic and financial system developments. While it has a European
focus, the analysis of national developments is also relevant in order to provide a better understanding of
the potential risks to banking stability. Moreover, this framework also covers the analysis of non-bank
financial institutions and financial markets as well as the analysis of the health of non-financial sectors, but
only to the extent that developments in these areas may have an impact on the banking sector.
The report is based on the monitoring of various MPIs, together with the qualitative assessment
carried out by using detailed information on banks’ risks. Such MPIs can reveal developments relevant for
banking stability which require further investigation, without implying that they can be used as early
warning indicators. With the necessary time series perspective, MPIs can be used to structure the analysis
and to facilitate cross-country comparisons.
The list of MPIs to be monitored in the context of this report is divided into seven risk areas: 1) risk
concentrations; 2) competitive conditions; 3) profitability and capital adequacy; 4) financial fragility; 5)
asset price and financial markets developments; 6) cyclical and monetary conditions; and 7) contagion. 19
These indicators are compiled using multiple statistical data sources, which cover data taken from MFI
balance sheet statistics and financial and non-financial accounts as well as aggregated micro-prudential
data used for supervisory purposes.20 The data taken from financial and non-financial accounts are used to
compile financial fragility indicators to evaluate the cyclical and monetary conditions.
18
These reports are available on the ECB website at www.ecb.int.
19
See Annex 2 for a full list of MPIs.
20
Data from financial supervisory sources are collected via the ESCB Working Group on Macro-prudential Analysis
(WG MA).
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The MPIs compiled by the ECB are closely related to the Financial Soundness Indicators (FSIs), both
the core and the encouraged set, proposed by the IMF. Out of the 41 FSIs, 28 are broadly matched by the
MPIs, although the ECB analysis includes indicators that are not deemed essential by the IMF.
However, the data used for the compilation of these MPIs suffer from certain limitations inherent in
the short-term nature of the exercise, i.e. all the data in used were originally designed for other purposes,
specifically to support the monetary policy of the ECB. Therefore, the quality and the methodological
soundness of the data as measured by their coverage as well as reference to the residency criterion,
consolidation and maturity have not been fully assessed yet. In addition, as shared by the international
community, the comparability of data across countries also needs to be improved in relation to data on
non-performing loans, provisions, and on off-balance sheet items. In this context, the work undertaken by
the IMF in drafting a Compilation Guide on Financial Soundness Indicators (IMF, draft March 2003) is
seen as a first step towards such a desirable harmonisation.
The annual report on the structural developments of the EU banking system, first published in
November 2002, is based on 29 structural statistical indicators, mainly for the banking sector. 21 The
indicators are compiled by using various data sources such as MFI balance sheet statistics, supervisory data
and financial markets statistics. The use of national (financial and non-financial) accounts data is restricted
to the “financial fragility” risk area. In this context, annual data are used to compile a debt-to-equity ratio
for the corporate sector, as well as household debt and saving ratios, and corporate and household debt
servicing ratios. These indicators also suffer from the lack of long time series based on harmonised
concepts, especially owing to different accounting practices across Europe, as well as from the lack of
timely and frequent information on some indicators.
Finally, the BSC also contributes to the ECB’s biannual Financial Stability Review (FSR) prepared
under the aegis of D-FS. The report has a wider focus than the two reports described above. Specifically,
financial stability is not confined to the banking sector, but also looks at other sectors and at the euro area
as a whole. The report highlights the evolution of the internal (euro area) and external risks, developments
in the euro area money markets and payment and settlement systems, as well as risks connected to the
financial sector. In this analysis, quarterly MUFA are used to describe debt developments in the nonfinancial sectors, as well as to provide a general overview of the financial relationships between the
institutional sectors in the euro area.
4.
Quarterly Monetary Union financial accounts and their further development
Since May 2001, a simplified version of quarterly MUFAs, the Table on Financing and Investment
(TFI) of the euro area non-financial sectors, has been compiled and published in Table 6.1 of the “Euro
area statistics” section of the ECB Monthly Bulletin (Annex 3), based on the conceptual framework as
outlined in Section 2. The TFI shows (non-seasonally adjusted) quarterly balance sheets and transactions
for the main financial assets (financial investment) and liabilities (financing) of the non-financial sectors,
starting in the last quarter of 1997. On the financing side, the data are presented by sector and original
maturity. Whenever possible the financing taken from MFIs is presented separately. The information on
financial investment is currently less detailed than that on financing, especially since a breakdown by
sector is not possible.
Most of the financial asset and liability categories are covered (see Table 2). These are currency and
deposits, securities other than shares, loans (except those granted by general government and non-financial
corporations), quoted shares, mutual fund shares and insurance technical reserves. Other financial
instruments (financial derivatives, unquoted shares and other equity, and other receivables and payables)
21
See Annex 3 for a full list of structural indicators.
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are not included. Among these, unquoted shares, other equity and trade credits and advances are of
relevance. In essence, the instruments currently covered are those which are either mediated through
financial corporations to non-financial sectors or traded on capital markets.
In March 2003, quarterly data on insurance corporations and pension funds (ICPFs) in the euro area
were published for the first time in Table 6.2 of the “Euro area statistics” section of the ECB Monthly
Bulletin. As for the non-financial sectors, the TFI for ICPFs shows quarterly stock and transaction data for
the main financial assets and liabilities. On the asset side, the data are broken down by financial instrument
and original maturity, while on the liability side, the financing of ICPFs covers mainly insurance technical
reserves.
Prospects to enrich financial stability analysis by MUFA are seen in the context of providing
integrated and consistent data. In this direction, the development of quarterly MUFA is following a stepby-step approach. First, the compilation of the quarterly TFI for non-financial sectors is nearly complete.
Second, work has already started, with the publication of the TFI for ICPFs, on extending the TFI to seven
sectors (three non-financial sectors, three financial sectors and the euro area rest of the world). In this step,
the complete coverage of the sectoral data for the financial instruments currently shown in the TFI will be
achieved. Extending the TFI in this direction will allow the data to be balanced for amounts outstanding as
well as transactions on an instrument-by-instrument basis.
The final aim is to compile detailed who-to-whom quarterly MUFA data in three-dimensional tables,
covering the breakdowns by instrument, debtor and creditor sector – either for the whole euro area or for
specific euro area sectors. These tables will allow analysis of who is financing whom, by what amount and
using which instrument. Together with the development of who-to-whom quarterly MUFA, work will be
concentrated on a comprehensive set of accumulation accounts and balance sheets. One major task will be
to develop consistent other flow accounts, covering revaluations and other changes in the volume of assets
accounts. This would also include the collection of stock and other flow data for non-financial assets.
Along with the developments in the compilation of quarterly financial accounts, the ECB produces
annual sectoral capital and financial accounts for the euro area as the aggregation of national data provided
by the members of the WG MUFA.22 These data have been used in the compilation of Table 6.3 of the
“Euro area statistics” section of the ECB Monthly Bulletin. Discrepancies may arise concerning the full
coverage of financial instruments where some lack of statistical basis is encountered. This is particularly
the case with unquoted shares and other equity, where full coverage has not yet been achieved for all
countries. Trade credits (especially for households) and financial derivatives may not be completely
covered either. Finally, domestic (not captured through the balance of payments) inter-firm loan financing
is in many cases not included.
5.
Outlook and conclusions
The paper has reviewed the potential usefulness of financial accounts statistics in the context of
financial stability analysis. A comprehensive set of quarterly financial accounts for the euro area and for
individual EU countries would greatly support financial stability analysis, mainly via the derivation of
macro-prudential indicators taken from the financial balance sheets and the transaction accounts of the
various non-financial sectors. A financial accounts matrix, showing both changes in financial assets and in
liabilities, complemented by balance sheet information, would provide important statistical information on
the decisions of economic agents to alter the level and composition of their financial portfolios and
liabilities.
22
This information is part of Tables 6, 7 and 8 of the ESA 95 Transmission Programme.
12
STD/NAES/FA(2003)4
The stability of the banking system crucially depends on the sustainability of the level of corporate
and household debt. Indebtedness and leverage of corporations are recognised as key leading indicators in
identifying financial stresses. The broad coverage of quarterly MUFA provides the appropriate framework
for this type of analysis. The use of quarterly MUFA is currently limited due to the lack of a full and
integrated set of data. However, with the completion of the step-by-step approach in the direction of whoto-whom quarterly MUFA, these data will certainly represent an essential asset for financial stability
analysis, specifically by improving the understanding of the links between sectors, euro area countries and
the rest of the world, and by disentangling the complexity of the financial system.
13
STD/NAES/FA(2003)4
References
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Sundararajan, V. and others (2002): “Financial soundness indicators: Analytical aspects and country
practices”, IMF Occasional Paper (212).
Elfferich, K. and de Jong, M. (2002): ”Macro-prudential indicators: A pilot compilation exercise for the
Netherlands”, IFC Bulletin No 12, pp. 210-15.
European Central Bank: Monthly Bulletin.
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Nations, and World Bank (1993): System of National Accounts.
Gracie, A. and Logan, A. (2002): “UK bank exposures: Data sources and financial stability analysis”, IFC
Bulletin No 12, pp. 185-98.
Grande, M. and Stubbe, M. (2002): “Macroeconomic and prudential information as a source for financial
stability indicators – Conceptual and practical issues from an EU perspective”, Contribution for parallel
session 4B of the 27th General Conference of the IARIW (20 August 2002).
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pp. 166-76.
International Monetary Fund (draft March 2003): Compilation Guide on Financial Soundness Indicators.
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Working Paper No. 03/117.
Jellema, T., Steven, K., McAdam, P. and Mink, R. (forthcoming): “A euro area accounting matrix and its
relevance for ECB monetary policy analysis”, Paper presented at the conference in honour of Prof. Erik
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Bulletin No 12, pp. 98-115.
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12, pp. 178-84.
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limitations”, IFC Bulletin No 12, pp. 199-209.
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STD/NAES/FA(2003)4
Van den Berg, P. and Enoch, C. (2001): “Recent developments in statistical requirements for financial
stability, and in their use – the perspective of international organisations”, IFC Bulletin No 9, pp. 9-13.
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use – the perspective of a central bank of a developed country”, IFC Bulletin No 9, pp. 14-17.
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No 12, pp. 149-57.
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15
STD/NAES/FA(2003)4
ANNEX 1
Financial accounts matrix
Sectors
Financial instruments
(Transactions in) Financial assets
Monetary gold and SDRs
Currency and deposits
Currency
Transferable deposits
Other deposits
Securities other than shares
Securities other than shares, excluding FD
Short-term
Long-term
Financial derivatives (FD)
Loans
Short-term
Long-term
Shares and other equity
Shares and other equity, excluding mutual funds shares
Quoted shares
Unquoted shares
Other equity
Mutual funds shares
Insurance technical reserves
Net equity of households in life insurance and pension
funds reserves
Prepayments of insurance premiums and reserves for
outstanding claims
Other accounts receivable
Trade credits and advances
Other
1) Including financial auxiliaries.
2) Including non-profit institutions serving households.
Total Non-financial
economy corporations
Total
Financial corporations
MFIs
OFIs 1)
ICPFs
Total
General government
Central
State and
government
local
government
Social
security
funds
Households 2)
Rest of the
world
STD/NAES/FA(2003)4
Sectors
Total Non-financial
economy corporations
Total
Financial corporations
MFIs
OFIs 1)
Financial instruments
(Incurrence of) Liabilities
Currency and deposits
Currency
Transferable deposits
Other deposits
Securities other than shares
Securities other than shares, excluding FD
Short-term
Long-term
Financial derivatives (FD)
Loans
Short-term
Long-term
Shares and other equity
Shares and other equity, excluding mutual funds shares
Quoted shares
Unquoted shares
Other equity
Mutual funds shares
Insurance technical reserves
Net equity of households in life insurance and pension
funds reserves
Prepayments of insurance premiums and reserves for
outstanding claims
Other accounts payable
Trade credits and advances
Other
(Net lending/net borrowing) Net financial assets
1) Including financial auxiliaries.
2) Including non-profit institutions serving households.
17
ICPFs
Total
General government
Central
State and
government
local
government
Social
security
funds
Households 2)
Rest of the
world
STD/NAES/FA(2003)4
ANNEX 2
Macro-prudential indicators
1) Risk concentrations
1
Aggregate lending (MFI credit – stock)
2
Aggregate new lending (MFI credit – differences of stocks)
3
Lending to households (stock)
4
Lending to non-bank non-financial corporations (stock)
5
Lending to non-bank financial corporations (stock)
6
Residential mortgage lending (lending for housing purposes) to households (stock)
7
Commercial mortgage lending (stock)
8
Aggregate fixed income (MFI holdings of securities other than shares and money market paper – stock)
9
Aggregate balance sheet total (stock)
10 Share of less than one year lending to non-MFIs (using original maturities)
11 Share of lending in foreign currency (other than domestic currency)
12 Aggregate lending to the non-bank non-financial sector (% of GDP and growth rate)
13 Aggregate fixed income securities holdings (% of GDP and growth rate)
14 Aggregate balance sheet total (% of GDP and growth rate)
15 Aggregate credit equivalent of off-balance sheet items (% of GDP and growth rate)
16 Ratio of non-bank deposits to M2 (%)
17 Ratio of total loans to non-bank deposits (%)
18 Share of foreign short-term liabilities in total liabilities (b.o.p. flow data)
19 Range of interbank and CD rates (highest-lowest, % points)
20 Aggregate gross credit exposure to BIS-defined emerging and developing countries (ratios to consolidated own funds of the
exposed banks)
21 Aggregate gross credit exposure to Asian countries (ratios to consolidated own funds of the exposed banks)
22 Aggregate gross credit exposure to Latin American countries (ratios to consolidated own funds of the exposed banks)
23 Aggregate gross credit exposure to central and east European countries (ratios to consolidated own funds of the exposed
banks)
2) Competitive conditions (margins expressed in % points to euro area money market rate or government bond yield)
24 Average margin on new lending
25 Average margin on new lending to households
26 Average margin on new lending to non-bank corporations
27 Average margin on retail deposits
28 Overall margin
3) Profitability and capital adequacy
29 Aggregate net non-interest income per aggregate total income (%)
30 Aggregate commissions (net) and fees per aggregate total income (%)
31 Aggregate trading and forex results per aggregate total income (%)
32 Aggregate operating cost (incl. depreciation) per total income (%)
33 Aggregate provisioning per own funds (%)
34 Aggregate bad debt charges per own funds (%)
35 Aggregate profit after provisions, before tax per own funds (ROE)
36 Aggregate profit after provisions, before tax per total assets (ROA)
37 Range of ROE among major banks (highest-lowest, %-points)
38 Number of banks below ROE 5%
39 Share of banks ROE below 5% in total assets (%)
40 Endowment effect as % of total profit after provisions, before tax
41 Non-performing loans (net of provisions) per total loans (%)
42 Non-performing loans (net of provisions) per total own funds (%)
43 Range of non-performing loans (net of provisions) per own funds among major banks (highest-lowest, % points)
44 Aggregate risk-based capital ratio
45 Aggregate tier 1 capital ratio
46 Own funds requirement under CAD
47 Range of risk-based capital ratio among major banks (highest-lowest, % points)
48 Range of the own funds requirement under CAD (highest-lowest, % points)
49 Number of banks risk based capital ratio below 9%
18
STD/NAES/FA(2003)4
50 Share of banks risk based capital ratio below 9% in total assets (%)
51 All bank share price index vs. all share price index
52 Average yield spread between bank bonds and government bonds
53 Average yield spread between interbank CDs and treasury bills
54 Range of spreads between bank bonds and government bonds (highest-lowest, % points)
55 Number of bank rating downgrades within the observation period
4) Financial fragility
56 Aggregate total debt to equity ratio in the (non-bank) corporate sector (%)
57
Ratio of household total debt to household financial (and real) assets (%)
58
Household savings ratio (%)
59
Ratio of (non-bank) corporate debt (or interest) servicing payments to corporate net earnings (cash flow) (%)
60
Ratio of private households’ debt (or interest) servicing costs to disposable income (%)
61
Number of arrears
62 Number of bankruptcies
5) Asset price developments
63 General stock index
64 Euro STOXX index
65
US stock index
66
Commercial real estate prices
67 Residential real estate prices
6) Cyclical and monetary conditions
68 Rate of real GDP growth (%)
69
Rate of nominal GDP growth (%)
70
71
Rate of growth in real aggregate investment (%)
Rate of growth in real private consumption
72
73
74
75
Rate of growth of unemployment rate (%)
Rate of change in M2/(M0)
Rate of change in the money market interest rate (3 month) (%)
Rate of change in the long-term real interest rate (10 year govt. bond) (%)
76 Rate of change in the exchange rates (EUR, DKK, GBP, GRD and SEK)
77 Rate of change in the consumer price index (CPI)
7) Contagion
78 Share of interbank liabilities in total liabilities
79 Other indicators to be established
19
STD/NAES/FA(2003)4
ANNEX 3
Structural statistical indicators
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
Number of credit institutions (CIs)
Number of local units (“branches”) of CIs
Number of employees of CIs
Number of domestic M&A involving CIs
Share of the five largest CIs in terms of total assets (CR5)
Herfindahl index for CIs’ total assets
Total assets of CIs
Total loans of CIs to non-CIs
Total deposits of CIs from non-CIs
Gross issues of short-term debt securities by non-financial companies
Gross issues of long-term debt securities by non-financial companies
Market value of listed shares
Total assets of securities and derivatives dealers
Total investments of insurance companies
Total assets under management by investment funds
Total assets under management by pension funds
Number of branches of CIs from EEA countries
Total assets of branches of CIs from EEA countries
Number of subsidiaries of CIs from EEA countries
Total assets of subsidiaries of CIs from EEA countries
Number of EEA country M&A between CIs
Number of branches of CIs from third countries
Total assets of branches of CIs from third countries
Number of subsidiaries of CIs from third countries
Total assets of subsidiaries of CIs from third countries
Number of third country M&A between CIs
Number of “virtual” banks
Total assets of “virtual” banks
Total number of ATMs
20
STD/NAES/FA(2003)4
ANNEX 4
Instrument coverage of the Table on Financing and Investment (TFI) of euro area non-financial
sectors
Main financial assets
Main liabilities
Currency and deposits
Loans taken from euro area MFIs and other financial
Currency
corporations by
Deposits of non-financial sectors other than central o/w taken from euro area MFIs
government with euro area MFIs
General government
Overnight
Short-term
With agreed maturity
Long-term
Redeemable at notice
Non-financial corporations
Repurchase agreements
Short-term
Deposits of central government with euro area MFIs
Long-term
Memo: Deposits of non-banks with banks outside the euro area
Households3)
Short-term
Long-term
Securities other than shares1)
Short-term
Memo: Loans taken from banks outside the euro area by euro
Long-term
area non-banks
Shares2)
Quoted shares
Mutual fund shares
o/w money market fund shares
Securities other than shares1) issued by
General government
Short-term
Long-term
Non-financial corporations
Short-term
Insurance technical reserves
Net equity of households in life insurance reserves and
Long-term
pension funds reserves
Prepayments of insurance premiums and reserves for Quoted shares issued by non-financial corporations
outstanding claims
Deposit liabilities of central government
Pension funds reserves of non-financial corporations
1)
2)
3)
Excluding financial derivatives.
Excluding unquoted shares.
Including non-profit institutions serving households.
21