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THE USE OF FINANCIAL ACCOUNTS IN ASSESSING FINANCIAL STABILITY Reimund Mink and Nuno Silva OECD Working Party on Financial Statistics Paris, 6 October 2003 FINANCIAL ACCOUNTS IN ASSESSING FINANCIAL STABILITY Contents of the presentation • Quarterly MUFA • Financial stability analysis • Uses of MUFA in financial stability analysis • Macro-prudential analysis at the ECB • Quarterly MUFA - way forward QUARTERLY MUFA The ESA 95 concepts and definitions • Residency and institutional sectors • Financial assets • Sequence of accounts • Market valuation and accrual accounting • Original maturity QUARTERLY MUFA The main uses of MUFA Monetary policy analysis Financial stability analysis Statistical quality analysis QUARTERLY MUFA Publication of data • Quarterly press release • Quarterly data - ECB Monthly Bulletin, Table 6.1 - ECB Monthly Bulletin, Table 6.2 - ECB Statistical Pocket Book, Table 7.1 - 7.3 • Annual data - ECB Monthly Bulletin, Table 6.3 - ECB Statistical Pocket Book, Table 6.1 and 6.2 QUARTERLY MUFA Example: Table 1 of the Press Release Financing of non-financial sectors in the euro area – main liabilities Total Debt Households Total (debt) Loans taken from euro area MFIs 3 4 1 2 1999 Q4 2000 Q4 2001 Q2 Q3 Q4 2002 Q1 Q2 Q3 Q4 2003 Q1 6.4 6.4 6.6 5.9 5.2 4.6 4.2 4.0 3.8 4.1 7.0 7.3 7.2 6.7 6.1 5.4 5.2 4.8 4.8 5.3 11.7 7.4 6.9 6.4 6.3 5.8 6.2 6.5 6.7 6.6 2001 Q4 2003 Q1 100 100 78 86 21 23 Non-financial corporations Total Debt Quoted shares Total Loans Debt Pension fund Taken securities reserves from euro area MFIs 5 6 7 8 9 10 11 Annual growth rate (%) 11.7 7.2 9.7 9.4 8.1 14.7 5.1 4.3 7.3 8.8 14.5 15.1 10.9 16.4 4.9 4.2 6.9 9.1 14.2 13.1 10.8 28.4 5.1 5.0 6.4 7.9 12.5 11.3 9.2 26.6 5.2 3.8 5.8 6.2 10.0 8.5 7.8 24.4 4.8 2.7 5.3 4.4 6.7 5.5 5.0 16.3 4.8 1.8 5.7 3.4 5.8 5.3 4.4 9.7 4.9 0.8 5.8 2.7 4.2 3.7 3.5 7.1 5.1 0.6 5.9 2.3 4.0 3.9 3.6 4.1 5.4 0.2 5.8 2.7 5.1 4.6 4.0 8.1 5.4 -0.2 Ratio as a percentage of main liabilities (amounts outstanding) 20 48 26 22 18 3 2 22 22 42 29 23 19 4 2 14 General government Total Deposits Loans Debt (debt) Taken securities from euro area MFIs 12 13 14 15 16 2.4 1.8 1.9 2.2 2.8 4.1 4.0 4.3 4.1 4.5 7.0 4.3 4.9 5.7 8.6 12.8 13.2 13.6 12.7 11.2 -0.9 -1.5 -2.4 -1.3 -0.2 0.6 -0.5 -0.7 -2.1 -3.1 0.3 -1.0 -1.9 -0.9 -0.9 0.0 -0.6 -1.1 -1.2 -2.8 3.0 2.5 2.8 2.9 3.3 4.6 4.6 5.0 5.2 6.0 31 34 1 1 6 6 5 5 24 27 QUARTERLY MUFA Input for monetary policy analysis • Commentary in the ECB Monthly Bulletin • Quarterly briefing note to the ECB Executive Board FINANCIAL STABILITY ANALYSIS The ECB definition “A condition whereby the financial system is able to withstand shocks without giving way to cumulative processes, which impair the allocation of opportunities savings and the payments in the economy” to investment processing of FINANCIAL STABILITY ANALYSIS Components of macro-prudential analysis MPIs Financial accounts STRESS TESTS Macroeconomic data (prices, interest and exchange rates) Qualitative information (compliance with standards) Macro-prudential analysis Financial accounts Market-based data (stock prices, credit ratings) Structural information (relative size, ownership of corporations) USES OF MUFA IN FINANCIAL STABILITY ANALYSIS The contribution • Integrated approach (sectors, instruments and stocks/flows) • Contribution to the general Improvement in statistics • Source to derive MPIs for the non-financial sectors • Financial innovation and its implications • Relationship with the “real” side of the economy USES OF MUFA IN FINANCIAL STABILITY ANALYSIS Methodological issues • Residency criterion • Aggregation and consolidation • Valuation and accrual accounting • Maturity definition MACRO PRUDENCIAL ANALYSIS AT THE ECB Article 3.3 of the ESCB Statute “Contribute policies authorities to the pursued relating smooth by to the the conduct of competent prudential supervision of credit institutions and the stability of the financial system” MACRO PRUDENCIAL ANALYSIS AT THE ECB The regular outputs • The annual macro-prudential report on the EU banking system • The annual report on the structural developments of the EU banking system • The ECB biannual Financial Stability Review QUARTERLY MUFA - WAY FORWARD The future of quarterly MUFA • Extend the current TFIs for the non-financial sectors and ICPFs to seven sectors • Improve the timeliness (90 days) • Complete the instrument coverage and the link between stocks and flows • Sectoral accounts • Quarterly who-to-whom system