Jean Marc Israël Head of Division, Monetary and Financial Statistics ECB Statistics for macro-prudential analysis and micro-prudential supervision: transferable insights to other central banks Skopje seminar 2-5 October 2013

Outline

1

International approach

2

European approach

3

Prospects for micro-prudential supervision

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Outline

1

International approach

2

European approach

3

Prospects for micro-prudential supervision

3

Reliable statistics for global financial stability

Central banks developed large amount of high quality data - For monetary policy purposes Financial crisis revealed additional efforts are needed - For better financial stability analysis Official statistics support multilateral policy responses - Increasing economic interdependencies among main economies need globally comparable economic and financial statistics/indicators

Crisis and role statistics Macroeconomic surveillance Conclusions

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Statistics for financial stability: G-20

Action plan on IMF/FSB report to G-20 1.

2.

20 Recommendations developed and implemented Key role Inter-Agency Group on Economic and Financial Statistics 3.

Principal Global Indicators (PGIs) website

 http://www.principalglobalindicators.org

Furthermore, G-20 support to the FSB-led initiative to create a global Legal Entity Identifier

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G-20 Recommendations G20 Recommendations

1. Better capture build-up risk financial sector 2. Improve data international financial network connections 3. Monitor vulnerability of domestic economies to shocks 4. Better communication official statistics 6

G-20 Recommendations

Data gap Build-up of risk in the financial sector Cross-border linkages Existing framework and ongoing collection

#2 Financial Soundness Indicators (FSIs) #5 Credit Default Swaps #7 Securities #10, #11, #12 Coordinated Portfolio Investment Survey, International Banking Statistics, International Investment Positions

Framework needs further development

#3 Tail Risk in the Financial System #4 Aggregate Leverage and Maturity Mismatches #6 Structured Products #8 and #9 Global Network Connections and Systemically Important Global Institutions #13 and #14 Financial and Nonfinancial Corporations’ Cross Border Exposures

Vulnerability of domestic economies to shocks

#15 Institutional Sector Accounts #17 Government Finance Statistics #18 Public Sector Debt #19 Real Estate Prices

Improving communication

#20 Principal Global Indicators (PGI) #16 Distributional Information 7

European Union (EU) and G-20

• The EU has a double role in the G-20 data gaps initiative: – EU as Member of the G-20 Eurostat and ECB are providers of the statistics for the EU and the Euro Area – Geographical area Eurostat and ECB act as regional hubs for data collection for the EU countries Eurostat and the ECB promote the developments of the European Statistical System and of the European System of Central Banks to match the G-20 Recommendations 8

Strategic action lines

1 Sectoral accounts work of high importance 2 Demand for greater granularity of data 3 Comprehensive and high-quality data essential 4 Align data requirements for macro- and micro-prudential needs 5 Look for synergies with IMF SDDS Plus requirements 6 Need to set priorities and timelines and to provide resources 9

2012 IMF/FSB Report to G-20: action plans

Table 1: Enhancements Existing Statistical Frameworks and Ongoing Collection

Recommendation #2. Financial Soundness Indicators #5. Credit Default Swaps #7. Securities Statistics #10/#11. Coordinated Portfolio Investment Survey #10/#11. International Banking Statistics #12. International Investment Position #15. Sectoral Accounts #17. Government Finance Statistics #18. Public Sector Debt #19. Real Estate Prices #20. PGI Enhancements Implemented Progress to date in G-20 Economies Reporting Timetables Going Forward and outstanding issues

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Outline

1

International approach

2

European approach

3

Prospects for micro-prudential supervision

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2.1

Macro-prudential oversight in Europe

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Macro-prudential oversight

As the financial crisis, triggered in August 2007 persisted and spread, in particular with the Lehman collapse in September 2008, the Financial Stability Board (in particular the US and the EU) decided to react to:   Enhance

micro-prudential supervision

Develop a new function:

macro-prudential oversight

Both micro and macro-prudential activities heavily rely on

timely, accurate and harmonised datasets

NB: Micro-prudential supervision stands for the oversight of individual institutions in the respective sector (banking, insurance, etc.)

Macro-prudential oversight Data needs ECB response

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European institutional framework (I)

ECB

Macro-prudential supervision

European Systemic Risk Board (ESRB) 27 EU National Central Banks EU Commission 3 European Supervisory Authorities Advisory & Scientific Committees Chair of Economic and Financial Committee National Supervisory Authorities Macro-prudential oversight Data needs ECB response

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European institutional framework (II)

Micro-prudential supervision

Banking (EBA) Joint Committee of European Supervisory Authorities (ESAs) Insurance and Occupational Pensions (EIOPA) Securities and Markets (ESMA) National Banking Supervisors Macro-prudential oversight National Insurance and Pension Supervisors Data needs National Securities and Markets Supervisors ECB response

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Scope of macro-prudential oversight

Macroprudential oversight [ESRB] Microprudential supervision Macroeconomic policies

Macroprudential oversight • Contribute to prevention of systemic risks to financial stability in the EU • ESRB establishes link micro-prudential supervision and macro-economy • ECB provides statistical support to ESRB

Macro-prudential oversight Data needs ECB response

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2.2

Data needs for financial stability purposes

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Financial stability analysis – data needs

ECB: identify main datasets and set priorities for ESRB/ECB’s own financial stability needs Led to breakdown in 6 risk categories:

1.

Interlinkages 2.

Profitability and solvency 3.

Funding and liquidity 4.

Credit risk 5.

Market risk 6.

Macro risk

Macro-prudential oversight Data needs ECB response

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ECB’s statistical initiatives

For each risk category, it is assessed:

– Which data are available according to the appropriate concepts – Possible proxy data – Are data missing?

1.

2.

3.

4.

5.

6.

Risk typologies

Interlinkages Profitability and solvency Funding and liquidity Credit risk Market risk Macro risk Macro-prudential oversight Data needs ECB response

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ECB’s statistical initiatives

• Data often available in Eurosystem/ESCB

or other national (supervisory) authorities

 Otherwise, surveys enable to get a picture • Distinctive datasets: • Active: data are reported to the competent authority • Passive: data are defined (e.g. supervisory framework) though not regularly reported • Ad-hoc: data need first to be defined and then reported

Macro-prudential oversight Data needs ECB response

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2.3

The ECB response

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The ECB response to financial stability data needs

• • • •

New statistics on

Investment funds (2009) Financial Vehicle Corporations engaged in securitisation (2011) Insurance Corporations and Pension Funds (2011) Financial market statistics • •

Enhancements to statistics

Further development euro area accounts (flow of funds, etc.) Implementation new manuals (SNA2010-ESA2010, BPM6, etc.

) • • • • • •

Development micro-datasets

Centralised Securities Database Securities Holding Statistics Loans Consolidated banking data Register of Financial Institutions Household and corporate surveys • • • •

Other datasets

BIS banking and CDS statistics IMF FSIs Commercial data Ad-hoc surveys

Macro-prudential oversight Data needs ECB response

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New statistics- better information on all financial sectors

Enhanced Monetary and Financial Statistics

Investment Funds • New statistics on assets and liabilities of euro area Investment Funds Financial Vehicle Corporations • Regular compilation statistics on euro area Financial Vehicle Corporations engaged in securitisation transactions and MFI securitisation Insurance Corporations & Pension Funds • New statistics on euro area Insurance Corporations & Pension Funds

Macro-prudential oversight Data needs ECB response

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New statistics- better information on all financial sectors

Enhanced Monetary and Financial Statistics

• Further advancing timeliness Timeliness Breakdowns • Providing more breakdowns of banks’ balance sheet and interest rates • New data on credit lines granted by banks Credit lines Compilation • Compilation harmonised financial statistics on a consolidated basis • Working with supervisors in a better alignment of supervisory and statistical concepts and data Alignment

Macro-prudential oversight Data needs ECB response

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New statistics - Better information on financial markets Other monetary / financial statistics in demand

1. Financial markets statistics 2. Probability density functions 3. Exposures to sovereign debt/GFS 4. STEP market statistics 5. Foreign currency borrowings by non-financial corporations, households, or credit institutions

Macro-prudential oversight Data needs ECB response

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Developments of micro-datasets

Statistics and Micro-databases

1 Register of Financial institutions and groups composition 2 Consolidated Banking Data/National Banking Indicators 3 Granular Credit Data 4 Sectoral/individual Issuance and Holdings of Securities 6 5 Household consumption and financing survey SME Corporate finance

Macro-prudential oversight Data needs ECB response

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Other datasets

Other datasets • BIS banking statistics (consolidated and locational by nationality) • Banks’ disclosures • Commercial data from Bloomberg, Moody’s, etc.

Ad-hoc surveys • Occur for specific issues • Tailored to latest developments in financial sector • Especially while EU Supervisory reporting frameworks are still in the making

Macro-prudential oversight Data needs ECB response

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Enhancements to macroeconomic statistics

1. Enhancing integrated quarterly financial and non-financial accounts euro area:

• • • Advance timeliness Improve consistency Enhance completeness, coverage and length

2. Consolidated lending exposures credit institutions vis-à-vis counterparts 3. Implementation of new international statistical standards (SNA2008-ESA2010, BPM6) Macro-prudential oversight Data needs ECB response

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ECB support to the ESRB Improvements

• White Book – i.e. regular information pack • Reference database  for surveillance reports and regular models supporting risk analysis • Risk Dashboard • Focus on EU Member States, e.g. National banking indicators

Macro-prudential oversight Data needs ECB response

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Examples

Examples presentations White Book

Macro-prudential oversight Data needs ECB response

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Examples

Macro-prudential oversight Data needs ECB response

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ESRB Risk Dashboard

  The European Systemic Risk Board sources of systemic risk across the (ESRB) monitors and assesses the EU financial system as a whole The ECB provides analytical, statistical , administrative and logistical support to the ESRB   Legal obligation to define a risk dashboard  ESRB Regulation (Art. 3.g) requires that the ESRB “in collaboration with the ESAs, develop a common set of quantitative and qualitative indicators (risk dashboard) to identify and measure systemic risk.” ESRB Risk Dashboard defined in cooperation with the ECB

Macro-prudential oversight Data needs ECB response 32

ESRB Risk Dashboard

1st publication 20 September 2012

Objectives Risk assessment Input further systemic risk analysis Communication tool

Specifications: 45 indicators and 6 risk typologies Allows synthetic view situation for deeper analysis Cannot replace expert judgement, but complements it Macro-prudential oversight Data needs ECB response

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ESRB Risk Dashboard

Interlinkages Profitability & Solvency

• • Composite indicator of systemic stress (CISS) Average systemic risk contribution of individual institution to overall risk using CoVar (EU banking syst.) • EU large banks: Leverage ratios

Liquidity & Funding Credit risk Macro risk Market risk Macro-prudential oversight

• Bank liabilities structure • Households debt-to-gross disposable income • Real estate comm. property, market size over GDP • Domestic credit-to-GDP ratio • Actual and forecasted GDP growth • Global risk aversion indicator • Price/earning ratio

Data needs ECB response

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ESRB Risk Dashboard

Six risk typologies Interlinkages

Macro risk Credit risk Market risk Liquidity and funding Interlinkages Profitability & solvency 35

ESRB Risk dashboard examples

Funding and liquidity 36

“

Good statistics are much cheaper than policy mistakes‘‘

(Janez Potočnik, EU Commissioner for the Environment, Eurostat Conference 2011)

Outline

1

International approach

2

European approach

3

Prospects for micro-prudential supervision

38

Overview

Overall framework and legal provisions for collection of information to support the tasks of the SSM Organisational chart for supervisory data SSM: Other data-related issues Outstanding issues

Overall framework (1/2)

Euro area summit statement (29 June):

“The Commission will present Proposals on the basis of Article 127(6)

for a single supervisory mechanism shortly. We ask the Council to consider these Proposals as a matter of urgency by the end of 2012. When an effective single supervisory mechanism is established, involving the ECB, for banks in the euro area the [European Stability Mechanism] could, following a regular decision, have the possibility to

recapitalize banks directly.”

=> Draft Regulation will soon be adopted

(based on Art. 127.6 of the Treaty) 40

Overall framework (2/2)

Three components:

- Banking supervision (on- and off-site) – high priority - Resolution mechanism

– second high priority

- Deposit guarantee scheme

– lower priority

It has become critical to “break the vicious circle between banks and sovereigns” 41

Commission proposal on the SSM agreed by Council (ECOFIN) on 12 September 2012 (I/3)

Scope – some important articles

Art. 5: Both the ECB and national competent authorities shall be subject to a duty of cooperation in good faith, and an obligation to exchange information Art. 9: ECB empowered to require […]

including information to be

provided at recurring intervals and in specified formats for supervisory and related statistical purposes Art. 18: Separation from monetary policy function; […] the ECB shall adopt and make public any necessary internal rules, including rules regarding professional secrecy and information exchanges between the two functional areas.

Art. 20: Professional secrecy and exchange of information [with national or European authorities and bodies]

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Commission proposal on the SSM agreed by Council (ECOFIN) on 12 September 2012 (2/3)

Scope – article 5(4) The ECB shall be responsible for the supervision of significant banking groups, stand-alone banks and branches, which on a consolidated basis meet any of the following conditions

Total assets > €30 bn Ratio total assets/GDP > 20% (unless total assets < €5 bn) Significance is notified by NSA and confirmed by ECB Upon ECB initiative, significant cross-border activity (subsidiaries in more than one countries etc.); Methodology Receiving public assistance from EFSF or ESM The three most significant banks in each country

By 1.7.13, ECB to publish the framework (list of significant banks, methodology, etc)

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Commission proposal on the SSM agreed by Council (ECOFIN) on 12 September 2012 (3/3)

Legal power to request information

INVESTIGATORY POWERS

Article 9 Requests for information

The ECB may require the following legal or natural persons (see list below) to provide all information that is necessary in order to carry out the SSM tasks, including information to be provided at recurring intervals and in specified formats for supervisory and related statistical purposes. Where the ECB obtains information directly from these persons, it shall make that information available to national authorities concerned.

Information can be requested from

credit institutions financial holding companies mixed financial holding companies mixed-activity holding companies persons belonging to such entities or 3 rd parties to whom entities have outsourced functions or activities

…. in compliance with single rule book (by European Banking Authority)!

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Organisation chart for supervisory data flows: state-of-play in euro area countries

 In 13 euro area countries the NCB is also the NSA  The organisation of supervisory reporting is integrated either in Statistics or in a separate unit (with access to supervisory data)  In the remaining 4 euro area countries (EE, FI, FR and MT)  Supervisory data are collected by the NCB on behalf of the NSA in MT and FR  Statistics have access to the supervisory data in the NCBs of EE and FI  In Banque de France, access to supervisory data is limited to statistical use  Consequent working assumption (to be validated):  data flows can be organised via (Statistics Departments of) NCBs in the euro area 45

Organisation chart for supervisory data flows: MFI balance sheet statistics: a model for SSM?

MFIs

Individual National perspective Individual & aggregated

NCBs ECB Monetary analysis Economic and financial stability analysis Minimum reserves Other statistical purposes:

•

National accounts

•

Balance of payments

Euro area and EU perspective 46

SSM – Other data-related issues (1/2)

Coverage:

• About 130 Banking groups in the euro area

based on the thresholds in the draft Regulation

• Ca. 2,000 Credit institutions – pertaining to these banking groups and financial conglomerates, or – stand-alone banks

Reporting

• The banking groups will fall under the

micro-supervision

of the ECB, and will still remain subject to EU law (likely from mid-2014)

–

e.g. single rule book will apply, as set up and maintained by the EBA

• The ECB may need additional, more specific and timely information 47

SSM – Other data-related issues (2/2)

Scope:

• Initial pilot based on data available • For supervision of ‘significant’ cross-border groups, ECB staff

will need to adequately receive, store and disseminate highly sensitive information



based on the existing (not fully comparable) and forthcoming (harmonised) FINREP / COREP

• The ECB will also make available a wide range of (available or

new) information on

»

groups’ composition (for mapping purpose, and combining various datasets)

»

very granular securities (issues and holdings),

»

loans (from credit registers, etc.),

»

derivatives (e.g. CDS)

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Many outstanding questions arising from SSM

Sharing of tasks will have an impact on scope of individual information collected by the ECB

How will the task related to data collection be shared with national authorities?

Uses of information for macro-prudential or monetary policy analysis?

How many banks will be supervised under the SSM and from when?

Data flow to/from EBA/ESMA/ESRB?

Internal ECB organisation: integration of supervisory/statistical data processes?

Access by supervisors to ECB statistical data?

National discretion in current supervisory reporting (e.g. Pillar II and FinRep for non-IFRS banks)?

Which data from banks not supervised by ECB?

List of significant banks and their maintenance?

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Thank you for your attention!

Questions?

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