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Back Matter

Author(s):
International Monetary Fund
Published Date:
April 2002
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    Appendix I Explanation of FSI Terms

    This explanation of indicators included in the core set and the encouraged set of FSIs provided to clarify this paper’s discussion. The terms may not correspond precisely to official definitions or standards. The Compilation Guide on Financial Soundness Indicators will clarify the definitions of the indicators included in Table A1.1 below.

    Table A1.1.Explanation of FSI Terms
    Depository Corporations (Core Set)
    Regulatory capital to risk-weighted assetsCapital as defined in the 1988 Capital Accord of the Basel Committee on Banking Supervision (and revisions) divided by risk-weighted assets. Capital is defined using regulatory standards and does not correspond directly to capital as shown in financial balance sheets. Risk-weighted assets equal the sum of each category of asset (and on-balance-sheet equivalents of off-balance-sheet positions) multiplied by a weight representing the credit risk associated with each category.
    Regulatory tier 1 capital to risk-weighted assetsThe Capital Accord (and revisions) defines three capital elements; tier 1 — permanent shareholders’ equity and disclosed reserves; tier 2—undisclosed reserves, revaluation reserves, general provisions and loan-loss reserves, hybrid debt-equity capital instruments, and subordinated long-term debt (over five years); and tier 3—subordinated debt (over two years original maturity).
    Nonperforming loans to total gross loansDesigned to capture the share of “problem” loans in the total loan portfolio- There is no standard definition of NPLs. In some countries, a loan is considered to be nonperforming when the principal and/or interest payments on it according to the original terms of the loan agreement are past due (e.g., by 90 days or more). Gross loans are used as the denominator as opposed to net loans, which deduct specific provisions (loan-loss reserves) from loans.
    Nonperforming loans net of provisions to capitalCompares NPLs and capital, NPLs are net of specific provisions (loan-loss reserves).
    Sectoral distribution of loans to total loans’Key sectors may include a dominant commodity export, or other sectors. Classification according to national accounts classifications is encouraged.
    Large exposures to capitalExposure refers to one or more credits to the same individual/economic group. There is no standard definition of “large,” In some countries, it refers to exposures exceeding 10 percent of regulatory capital.
    Return on assetsMeasures banks’ efficiency in using their assets. Can be calculated as net income (gross income less noninterest expenses) to average total assets.
    Return on equityMeasures banks’ efficiency in using their capital. Can be calculated as net income to period average capital.
    Interest margin to gross incomeLooks at profitability resulting from banks’ interest earning assets minus interest expenses—that is, interest margin (or net interest income).
    Noninterest expenses to gross incomeCompares administrative expenses and gross income (interest margin plus noninterest income).
    Liquid assets to total assets (liquid asset ratio)Liquid assets, in general, refer to cash and assets that are readily convertible to cash without significant loss, often including government and central bank securities.
    Liquid assets to short-term liabilitiesDesigned to capture the liquidity mismatch of assets and liabilities. A variety of definitions are used at present.
    Duration of assets Duration of liabilitiesWeighted average term-to-maturity of an asset’s (liability’s) cash flow, the weights being the present value of each future cash flow as a percent of the asset’s full price. Alter native measures of interest rate sensitivity include: (1) average interest rate repricing period for assets and liabilities (period until financial instruments are redeemed or the interest rates on them are reset or reindexed); and (2) average maturity of assets and liabilities. A currency breakdown of duration helps to identify maturity mismatches in foreign currency.
    Net open position in foreign exchange to capitalNet on-balance-sheet and off-balance-sheet asset and liability positions in foreign currencies. According to the Basel Committee, net open positions in each currency should be calculated as the sum of net spot position, net forward position, guarantees, net future income and expenses not yet accrued but already fully hedged, net notional value of foreign currency options, and any other item representing a profit/loss in foreign currencies.
    Capital to assetsSimple ratio of capital to total assets, without risk weighting. This is the inverse of the leverage ratio.
    Geographical distribution of loans to total loans1Loan exposure by foreign country or region.
    Gross asset position in derivatives to capital Gross liability position in derivatives to capitalThe on-balance-sheet value of derivatives in an asset (or liability) position, plus the fair value of off-balance-sheet derivatives in an asset (or liability) position.
    Trading income to total incomeDesigned to capture the share of banks’ income from trading activities, including currency trading.
    Personnel expenses to noninterest expensesMeasures the incidence of personnel costs in total administrative costs.
    Spread between reference lending and deposit ratesA simple measure of bank profitability as well as of efficiency and competition in financial markets, it measures the difference (usually in basis points) between representative rates. There is no standard definition of reference rates.
    Spread between highest and lowest interbank rateDesigned to capture banks’ own perception of problems facing banks with access to the interbank market.
    Customer deposits to total (noninterbank) loansA simple measure of liquidity, it compares deposits to loans (excluding interbank activity).
    FX-denominated loans to total loans1 FX-denominated liabilities to total liabilitiesThese indicators measure the relative size of these exposures.
    Net open position in equities to capitalPositions in each equity should be calculated as the sum of on-balance-sheet holdings of equities and notional positions in equity derivatives.
    Market Liquidity
    Average bid-ask spread in the securities marketA measure of market tightness (the difference between prices at which a market participant is willing to buy and sell a security), The specific market can be that for Treasury bills and bonds, central bank bills, or other securities. depending on the particular conditions in the country.
    Average daily turnover ratio in the securities marketAs a measure of market depth, it is the volume of securities traded daily as a percentage of total securities listed on an exchange. The indicator could be calculated for a variety of markets.
    Non bank Financial Intermediaries
    NBFI assets to total financial system assetsCaptures the relative importance of NBFIs in a country’s total financial assets. It can be broken down by NBFI subsector.
    NBFI assets to GDPIndicates the relative size of NBFIs in the economy. It can be broken down by NBFI subsector.
    Nonbank Nonfinancial Corporations
    Total debt to equityA measure of corporate leverage, it can be calculated as total debt to book value of equity.
    Return on equityCaptures firms’ efficiency in using their equity. Can be calculated as EBIT (earnings before interest and taxes) to average equity.
    Debt service coverageMeasures firms’ capacity to cover their debt service payments. Can be calculated as EBIT to interest and principal expenses.
    Corporate net FX exposure to equityLooks at firms’ exposure to foreign exchange risk. It can be calculated as the sum of net positions in each foreign currency.
    Number of applications for protection from creditorsA measure of bankruptcy trends; it is influenced by the quality and nature of bankruptcy and related legislation
    Households
    Household debt to GDPCaptures the overall level of household indebtedness (commonly related to consumer loans and mortgages) as a share of GDP
    Household debt burden to incomeMeasures households’ capacity to cover their debt payments (principal and interest). Can be calculated as a share of total disposable income.
    Real Estate Markets
    Real estate pricesDesigned to capture price trends in the real estate market. There is no standard definition and various intra-country and sub sectoral breakdowns are possible (e.g., industrial, commercial, retail, and residential).
    Residential real estate loans to total loansMeasures banks’ exposure to the real estate sector, with a focus on household borrowers. There is no standard definition. May include mortgage lending and/or other loans collateralized by residential real estate.
    Commercial real estate loans to total loansMeasures banks’ exposure to the real estate sector, with a focus on corporate borrowers. There is no standard definition. May include loans for the purchase of commercial real estate, loans to construction companies, and/or other loans collateralized by commercial real estate.

    Data on credit, which is a more comprehensive concept than loans* can be used as an alternative to loans. Credit (assets for which the counter-party incurs debt liabilities) includes loans, securities other than shares, and miscellaneous receivables.

    Appendix II Aggregation Issues

    Simple aggregation of balance sheets and income statements of individual institutions can disguise important structural information, and it is often necessary to supplement the aggregate data with information on dispersion. For example, the capital to asset ratio of a system is calculated by dividing the total capital by total assets, which is essentially the average (or mean) capital to asset ratio of the system. If capital asset ratios were symmetrically distributed, this statistic would also convey information about the middle capital asset ratio (the median) as well as the most frequently observed capital asset ratio (the mode). However, typically the distribution is not symmetric; hence, focusing on the mean values only may be misleading as the mean can be affected by value of outliers—for example, one very strongly capitalized bank could be more than offsetting many other undercapitalized banks.

    Descriptive statistics on data dispersion provide ways to supplement mean values with additional information. Data skewness can be particularly useful, as it provides a measure of the size and direction of asymmetry in the distribution of the observations. Positive skewness indicates that aggregation biases the results upwards (a substantial number of institutions are actually below the average), and the opposite is true for negative skewness. Skewness is zero when the distribution is symmetrical—that is, mean, median, and mode are equal. To get a sense of the proportional effect of the outliers, or the thickness of the tails, the kurtosis can also be calculated. Ways to calculate the direction and degree of skewness and the degree of kurtosis are discussed below.

    Descriptive Statistics and Data Dispersion

    Summary measures for a data set are often referred to as descriptive statistics. Descriptive statistics fall into four main categories: (1) measures of position, (2) measures of variability, (3) measures of skewness, and (4) measures of kurtosis. They can be useful for beginning data analysis, for comparing multiple data sets, and for reporting final results of a survey.

    Measures of position (or central tendency) describe where the data are concentrated:

    • Mean (first moment of the distribution, or x is the mathematical average of the data and is a common measure of central tendency.

    • Median (Med) is the middle observation in a data set. The median is often used when a data set is not symmetrical, or when there are outlying observations.

    • Mode is the value around which the greatest number of observations are concentrated, or the most common observation.

    Measures of variability describe the dispersion (or spread) of the data set:

    • Range is the difference between the largest and the smallest observations in the data set. The range has limitations because it depends on only two numbers in the data set.

    • Variance (second moment of the distribution, or σ2) measures the dispersion of the distribution around the mean, taking into account all data points.

    • Standard Deviation (or σ) is the positive square root of the variance, and is the most common measure of variability. Standard deviation indicates how close to the mean the observations are.

    Measures of skewness indicate whether the data are symmetrically distributed:

    • Skewness (third moment of the distribution, or Ps) measures the degree of asymmetry of the data set. Positive skewness indicates a longer right-hand side (tail) of the distribution; negative skewness a longer tail on the left. Distributions that are symmetric have identical tails and thus no skewness. One easy way of determining skewness is to compare the values of mean and the median relative to the standard deviation:

    A more precise method to calculate skewness is the Pearson coefficient:

    Measures of kurtosis indicate whether the data are more or less concentrated toward the center:

    • Kurtosis (fourth moment of the distribution, or μ4) measures the degree of flatness of the distribution near its center, or equivalently the degree of thickness of the tails. It is large if the distribution has sizeable tails that extend much further from the mean than ± σ kurtosis is zero if the distribution is normal. A normalized measure is:

    Appendix III Additional FSIs Identified by Respondents

    The User Questionnaire asked respondents to indicate FSIs not covered in the survey that they consider useful, or FSIs they use that differ from those in the survey. Respondents identified a relatively small number of additional FSIs. Conversely, few commented that the list of FSIs was too long.

    As already noted in the body of the paper, additional asset price information (real estate, equities, and bank equities) was requested most often, and a number of respondents identified information on the distribution of observations as being useful.

    Some of the other additional FSIs identified are listed below.

    • Aggregate growth indicators for various types of lending;

    • Distribution of loans by size of borrower;

    • Indicators of the composition of liabilities (subordinated debt, guarantees, government credits, etc.);

    • Turnover and spreads in securities repo and swaps markets;

    • Number of banks and total assets by CAMELS ranking;

    • Ratings of banks and their distribution;

    • More quickly available “flash indicators,” such as bank and bond yields, that provide current assessments of markets;

    • Developments in payments systems, including collateral held and liquidity.

    Other observations by respondents

    Respondents made a number of other observations regarding FSIs and their compilation and dissemination.

    • One concern expressed was that aggregation of information on individual financial institutions could result in the offsetting of positions of individual units that could obscure the meaning of some FSIs.

    • Several respondents said that regular compilation of a large range of FSIs might not justify the resource costs. One respondent said that financial institutions were already subject to substantial data reporting requirements and would not welcome new statistical demands. It was suggested that ad hoc compilation of FSIs could be carried out when needed.

    • Several respondents said that many organizations were working on financial stability issues or closely related initiatives. Close cooperation among parties working in the field was considered desirable,

    • One respondent suggested that the selection of FSIs might wait until the completion of the Basel Committee’s work on the new capital adequacy framework.

    • Several comments were made regarding the proper treatment of money market mutual funds and whether they should be included within the depository corporations sector, as done in the survey. It was noted that the risks faced by money market mutual funds could significantly differ from those faced by banking institutions and therefore mutual funds might be excluded from the analysis or might be separately analyzed. Alternatively, it was suggested that all mutual funds should have been covered in the survey because the greatest risks are likely to be faced by non-money market funds that tended to escape supervision by bank supervisors.

    • Several countries commented that flexibility should be sought in presentation of macroprudential information. One G-7 country commented that, “It is not possible to have uniform rules on the presentation of macroprudential indicators. At any rate, caution is advised in view of the heterogeneity that may exist in terms of national concepts and calculation methods.”

    Appendix IV Tables of Survey Results
    Table A4.1.FSIs for which Components Are Extensively Compiled(Very useful FSI—Group I—are in italics)
    1.1Basel capital adequacy ratio
    1.1aRatio of Basel tier 1 capital to risk-weighted assets
    1.1bRatio of Basel tier 1 + tier II capital to risk-weighted assets
    1.3Ratio of total on-balance-sheet assets to own funds
    2.1Distribution of on-balance-sheet assets by Basel risk category
    2.4Distribution of loans by sector
    2.4bLoans for investment in residential real estate
    2.5Distribution of credit extended by sector
    2.6Distribution of credit, by country or region
    2.7Ratio of credit to related entities to total credit
    2.8Ratio of total large loans to own funds
    2.9Ratio of gross nonperforming assets to total assets
    2.10Ratio of nonperforming loans net of provisions to total assets
    3.1Change in the number of depository corporations
    3.2Ratio of profits to period-average assets (ROA)
    3.3Ratio of profits to period-average equity (ROE)
    3.4Ratio of net interest income to profits
    3.5Ratio of trading and foreign currency gains/losses to profits
    3.6Ratio of operating costs to net interest income
    3.7Ratio of staff costs to operating costs
    3.8Spread between reference lending and deposit rates
    3.9Share of assets of the three largest depository corporations in total assets of depository
    corporations
    4.3Ratio of liquid assets to total assets
    4.4Ratio of liquid assets to liquid liabilities
    4.9Ratio of central bank credit to depository corporations to their total liabilities
    4.10Ratio of total customer deposits to total (noninterbank) loans
    4.11Ratio of foreign currency customer deposits to total (noninterbank) foreign currency loans
    5.1Ratio of gross foreign currency assets to own funds
    5.2Ratio of net foreign currency positions to own funds
    5.7Ratio of gross positions in equities to own funds
    Table A4.2.SDDS Subscribers: Compilation and Dissemination of FSIs and Components
    PercentPercentPercentPercent
    UsefulnessCompilingDisseminatingCompilingDisseminating
    FSIScoreFSIsFSIsComponentsComponents
    1.Capital adequacy
    1.1Basel capital adequacy ratio3.878627862
    1.1aRatio of Basel tier I capital to risk-weighted assets3.674487448
    1.1bRatio of Basel tier I + tier II capital to risk-weighted assets3.476487648
    1.1cRatio of Basel tier I + II + III capital to risk-weighted assets3.046284628
    1.2Distribution of capital adequacy ratios (number of institutions within specified capital adequacy ratio ranges)3.4228228
    1.3Ratio of total on-balance-sheet assets to own funds3.140188060
    2.Asset quality
    (a)Lending institutions
    2.1Distribution of on-balance-sheet assets, by Basel risk-weight category3.476327632
    2.2Ratio of total gross asset position in financial derivatives to own funds2.928105016
    2.3Ratio of total gross liability position in financial derivatives to own funds2.924104616
    2.4Distribution of loans, by sector3.676647264
    2.4aof which: for investment in commercial real estate3.340324032
    2.4bof which: for investment in residential real estate3.356485648
    2.5Distribution of credit extended, by sector3.548365442
    2.6Distribution of credit extended, by country or region3.360446850
    2.7Ratio of credit to related entities to total credit3.32466216
    2.8Ratio of total large loans to own funds3.42885416
    2.9Ratio of gross nonperforming loans to total assets3.946328058
    2.10Ratio of nonperforming loans net of provisions to total assets3.842246844
    (b)Borrowing institutions
    2.11Ratio of corporate debt to own funds (“debt-equity ratio”)3.524164836
    2.12Ratio of corporate profits to equity3.322144836
    2.13Ratio of corporate debt service costs to total corporate income3.322144428
    2.14Corporate net foreign currency exposure3.340146
    2.15Ratio of household total debt to GDP3.122124834
    2.15aof which, mortgage debt to GDP2.938283828
    2.15bof which: debt owed to depository corporations to GDP2.944364436
    2.16Number of applications for protection from creditors2.722152218
    3.Profitability and competitiveness indicators
    3.1Rate of change in number of depository corporations2.640306050
    3.3Ratios of profits to period-average equity (ROE)3.648427450
    3.4Ratio of net interest income to total income3.544308264
    3.5Ratio of trading and foreign exchange gains/losses to total income3.336247454
    3.6Ratio of operating costs to net interest income3.342268458
    3.7Ratio of staff costs to operating costs3.142283256
    3.8Spread between reference lending and deposit rates3.522185248
    3.9Share of assets of the three largest depository corporations in total assets of depository corporations2.838187232
    4.Liquidity
    4.1Distribution of three-month local currency interbank rates for different depository corporations2.9188188
    4.2Average interbank bid-ask spread for three-mo nth local currency deposits3.022122212
    4.3Ratio of liquid assets to total assets3.440207034
    4.4Ratio of liquid assets to liquid liabilities3.440206834
    4.5Average maturity of assets3.31663014
    4.6Average maturity of liabilities3.21663414
    4.7Average daily turnover in the treasury bill (or central bank bill) market2.630203020
    4.8Average bid-ask spread in the treasury bill (or central bank bill) market2.7166166
    4.9Ratio of central bank credit to depository corporations to depository corporations’ total liabilities2.820147058
    4.10Ratio of customer deposits to total (noninterbank) loans3.036148066
    4.11Ratio of customer foreign currency deposits to total (noninterbank) foreign currency loans2.826146848
    5.Sensitivity to market risk indicators
    5.1Ratio of gross foreign currency assets to own funds3.028107244
    5.2Ratio of net foreign currency position to own funds3.328105018
    5.3Average interest rate repricing period for assets3.0262262
    5.4Average interest rate repricing period for liabilities3.0262262
    5.5Duration of assets3.2182182
    5.6Duration of liabilities3.2182182
    5.7Ratio of gross equity position to own funds2.922106242
    5.8Ratio of net equity position to own funds2.918103016
    5.9Ratio of gross position in commodities to own funds2.31042612
    5.10Ratio of net position in commodities to own funds2.41462410
    1

    The denominator used in columns three and five is 50, the total number of SDDS countries as of December 2001.

    Table A4.3.Usefulness of FSIs by Type of User and Type of Economy
    Supervisors
    IndustrialEmergingDevelopingAverage
    1.Capital adequacy
    1.1Basel capital adequacy ratio3.93.93.83.9
    1.1aRatio of Basel tier 1 capital to risk-weighted assets3.83.63.73.7
    1.1bRatio of Basel tier 1 + tier II capital to risk-weighted assets3.43.73.63.6
    1.1cRatio of Basel tier 1 + II + III capital to risk-weighted assets3.13.33.23.2
    1.2Distribution of capital adequacy ratios (number of Institutions within specified capital adequacy ratio ranges)3.33.43.23.3
    1.3Ratio of total on-balance-sheet assets to own funds2.83.33.13.1
    2.Asset quality
    (a)Lending institutions
    2.1Distribution of on-balance-sheet assets, by Basel risk-weight category3.23.63.53.5
    2.2Ratio of total gross asset position in financial derivatives to own funds2.53.02.42.7
    2.3Ratio of total gross liability position in financial derivatives to own funds2.52.92.42.7
    2.4Distribution of loans by sector3.63.63.53.6
    2.4aof which: for investment in commercial real estate3.33.33.23.3
    2.4bof which: for Investment in residential real estate3.33.33.23.3
    2.5Distribution of credit extended by sector3.43.63.73.6
    2.6Distribution of credit extended by country or region3.33.12.83.1
    2.7Ratio of credit to related entities to total credit3.13.63.63.5
    2.8Ratio of total large loans to own funds3.43.73.73.6
    2.9Ratio of gross nonperforming loans to total assets3.93.83.93.9
    2.10Ratio of nonperforming loans net of provisions to total assets3.93.73.83.8
    (b)Borrowing institutions
    2.11Ratio of corporate debt to own funds (“debt-equity ratio”)3.43.53.334
    2.12Ratio of corporate profits to equity3.23.43.33.3
    2.13Ratio of corporate debt service costs to total corporate income3.33.33.03.2
    2.14Corporate net foreign currency exposure3.23.33.13.2
    2.15Ratio of household total debt to GDP3.12.82.82.9
    2.15aof which: mortgage debt to GDP3.02.72.82.8
    2.15bof which: debt owed to depository corporations to GDP3.02.73.02.9
    2.16Number of applications for protection from creditors2.62.82.62.7
    3.Profitability and competitiveness
    3.1Rate of change in number of depository corporations2.62.73.02.8
    3.2Ratio of profits to period-average assets (ROA)3.63.83.63.7
    3.3Ratio of profits to period-average equity (ROE)3.73.73.63.7
    3.4Ratio of net interest income to total income3.63.63.83.7
    3.5Ratio of trading and foreign exchange gains/losses to total income3.53.43.43.4
    3.6Ratio of operating costs to net Interest income3.33.63.63.6
    3.7Ratio of staff costs to operating costs3.03.43.53.4
    3.8Spread between reference lending and deposit rates3.53.53.73.6
    3.9Share of assets of the three largest depository corporations in total assets of depository corporations2.93.22.93.0
    4.Liquidity
    4.1Distribution of three-month local currency interbank rates for different depository corporations2.73.02.92.9
    4.2Average Interbank bid-ask spread for three-month local currency deposits3.02.92.92.9
    4.3Ratio of liquid assets to total assets3.33.63.53.5
    4.4Ratio of liquid assets to liquid liabilities3.33.73.73.6
    4.5Average maturity of assets3.23.33.63.4
    4.6Average maturity of liabilities3.23.33.63.4
    4.7Average daily turnover in the Treasury bill (or central bank bill) market2.32.73.12.7
    Type of User
    Policy/ResearchPrivate SectorAverage
    IndustrialEmergingDevelopingAverageIndustrialEmergingDevelopingAverageIndustrialEmergingDevelopingWorld Total
    3.93.93.23.73.43.83.53.63.73.93.63.8
    3.43.63.23.43.63.63.33.53.63.63.53.6
    3.23.63.13.33.13.33.13.23.73.63.43.4
    2.93.02.82.92.72.93.12.92.93.13.13.0
    3.63.62.93.43.13.13.23.13.33.43.13.3
    3.13.43.53.43.03.13.53.12.93.33.33.2
    3.13.53.23.33.43.43.53.43.23.53.43.4
    2.83.23.03.02.92.72.52.72.73.02.62.8
    2.83.22.93.02.82.72.52.72.72.92.62.8
    3.63.83.53.63.43.43.73.53.53.63.53.6
    3.53.53.13.43.21.93.03.03.33.33.13.2
    3.43.43.13.33.22.93.03.03.33.23.23.2
    3.43.63.63.63.23.73.03.43.33.63.63.5
    3.23.22.73.13.23.42.83.23.23.22.83.1
    3.03.73.33.42.93.52.83.13.03.63.53.4
    3.23.53.53.43.13.33.53.23.23.63.63.5
    3.94.03.83.93.73.93.73.83.93.93.83.9
    3.83.93.63.83.73.73.73.73.83.83.83.8
    3.83.73.33.63.13.43.43.33.43.53.33.4
    3.33.53.23.42.93.23.13.13.13.43.23.3
    3.33.53.13.32.83.32.73.03.23.43.03.2
    3.23.52.63.23.23.52.73.33.23.42.93.2
    3.53.22.93.23.12.92.52.93.23.02.83.0
    3.32.92.83.02.92.72.32.73.12.82.72.8
    3.13.02.83.02.92.82.32.73.02.82.82.9
    3.12.62.62.82.82.72.02.62.82.72.52.7
    2.52.72.72.61.92.93.12.62.42.72.92.7
    3.53.83.53.63.13.73.63.53.53.83.63.6
    3.63.93.53.72.93.73.63.43.53.83.63.6
    3.23.73.13.43.03.63.43.33.33.63.63.5
    3.13.42.83.22.93.43.33.23.23.43.33.3
    3.03.63.53.42.63.53.33.13.03.63.63.4
    2.73.43.03.12.53.33.33.02.83.43.43.2
    3.43.73.53.53.23.62.93.33.43.63.53.5
    2.63.22.92.92.52.92.82.72.73.12.92.9
    2.63.12.92.92.93.12.42.92.73.12.82.9
    2.63.12.72.83.03.22.32.92.93.02.72.9
    3.13.73.83.53.33.63.33.43.23.63.53.5
    2.93.73.93.53.43.73.33.53.23.73.73.6
    2.93.73.73.43.03.33.43.23.03.43.63.4
    2.93.73.73.43.03.33.43.23.03.43.63.4
    2.13.23.32.92.53.22.72.82.33.03.12.8
    Table A4.3. (concluded)
    Supervisors
    IndustrialEmergingDevelopingAverage
    4.8Average bid-ask spread in the Treasury bill (or central bank bill) market2.32.82.92.7
    4.9Ratio of central bank credit to depository corporations to depository corporations’ total liabilities2.63.12.92.9
    4.10Ratio of customer deposits to total (noninterbank) loans3.13.23.53.3
    4.11Ratio of customer foreign currency deposits to total (noninterbank) foreign currency loans2.63.13.03.0
    5.Sensitivity to market risks
    5.1Ratio of gross foreign currency assets to own funds2.73.23.23.1
    5.2Ratio of net foreign currency position to own funds3.33.73.53.5
    5.3Average interest rate repricing period for assets3.03.23.13.1
    5.4Average interest rate repricing period for liabilities2.93.13.13.1
    5.5Duration of assets3.03.23.03.1
    5.6Duration of liabilities3.03.13.13.1
    5.7Ratio of gross equity position to own funds2.92.92.82.9
    5.8Ratio of net equity position to own funds2.92.92.92.9
    5.9Ratio of gross position in commodities to own funds2.32.32.12.2
    5.10Ratio of net position in commodities to own funds2.32.32.32.3
    Type of User
    Policy/ResearchPrivate SectorAverage
    IndustrialEmergingDevelopingAverageIndustrialEmergingDevelopingAverageIndustrialEmergingDevelopingWorld Total
    2.23.33.22.92.53.22.72.82.33.03.02.8
    2.63.12.62.82.63.02.62.82.63.12.82.9
    2.93.43.03.22.63.23.02.92.93.33.33.2
    2.43.22.82.92.93.12.32.82.63.12.92.9
    2.63.33.23.12.93.13.33.02.73.23.23.1
    2.93.53.53.33.13.53.33.33.13.63.53.4
    2.83.52.83.02.63.32.82.92.83.33.03.0
    2.83.42.83.02.63.32.82.92.83.23.03.0
    2.93.63.03.33.03.43.03.23.03.43.03.2
    2.93.63.03.33.13.33.03.23.03.33.03.2
    2.73.13.33.02.72.92.82.82.83.03.02.9
    2.83.13.43.12.72.83.02.82.83.03.13.0
    2.32.72.72.62.32.52.52.42.32.52.42.4
    2.42.72.82.62.32.52.52.42.32.52.52.4
    Table A4.4.Compilation and Dissemination of FSIs by Type of Economy
    Industrial Countries
    TotalNumberPercentNumberPercent
    inCompilingofDisseminatingof
    GroupFSIsTotalFSIsTotal
    1. Capital adequacy
    1.1 Basel capital adequacy ratio2120951571
    a. Basel tier 1 capital (net of deductions)2119901362
    b. Basel tier II capital (net of deductions)2119901257
    c. Basel tier III capital (net of deductions)211571838
    d. Risk-weighted assets2119901257
    1.2 Distribution of capital adequacy ratios21838314
    a. Number of institutions with Basel capital ratios, falling into specified ranges21838314
    b. Assets of institutions within each range211257629
    c. Assets by type of depository corporation
    c.1 Headquartered in the country211362524
    of which: internationally active21733210
    of which: state-owned or -controlled21733314
    c.2 Headquartered in other countries211152210
    1.3 Ratio of total on-balance-sheet assets to own funds211362629
    a. Total on-balance-sheet assets2120951362
    b. Own funds (equity capital and reserves)2120951362
    2. Asset quality
    (a) Lending institution
    2.1 Distribution of on-balance-sheet assets by Basel risk-weight category211781733
    a. Assets per Basel risk-weight category211781733
    2.2 Ratio of total gross asset position in financial derivatives to own funds21943419
    a. Total gross asset position in derivatives211571629
    b. of which: off-balance-sheet position211467419
    2.3 Ratio of total gross liability position in financial derivatives to own funds21733419
    a. Total gross liability position in derivatives211467629
    b. of which: off-balance-sheet position21125749
    2.4 Distribution of loans by sector21211001781
    a. Loans by national accounts sectors2120951781
    of which:
    a. 1. Loans for investment in commercial real estate211362943
    a.2. Loans for investment in residential real estate2117811571
    a.3. Loans to other key sectors (specify)2114671048
    b. Total loans2119901990
    2.5 Distribution of credit extended by sector211152733
    a. Credit by national account sectors211362943
    b. Total credit2118861362
    2.6 Distribution of credit by country or region2116761257
    a. Loans by country or region2118861362
    2.7 Ratio of credit to related entities to total credit21629210
    a. Credit to related entities211362314
    2.8 Ratio of total large loans to own funds2162900
    a. Total large loans (specify size range)21125715
    2.9 Ratio of gross nonperforming loans to total assets211362943
    a. Gross nonperforming loans2119901257
    2.10 Ratio of nonperforming loans net of provisions to total assets211257838
    a. Nonperforming loans net of provisions2118865211
    (b) Borrowing institution
    2.11 Ratio of corporate debt to own funds (“debt-equity ratio”)21943733
    a. Total corporate debt2116761257
    b. Corporations’ own funds2115711257
    Emerging CountriesDeveloping CountriesWorld Total
    TotalNumberPercentNumberPercentTotalNumberPercentNumberPercentTotalNumberPercentNumberPercent
    inCompilingofDisseminatingofinCompilingofDisseminatingofinCompilingofDisseminatingof
    GroupFSIsTotalFSIsTotalGroupFSIsTotalFSIsTotalGroupFSIsTotalFSIsTotal
    443886276128279611399385915357
    443784214828258910369381874447
    443682214828248610369379854346
    441432920287254149336392123
    444193245528248611399384904751
    4471437286215189321231112
    4471637286215189321231112
    4415348182810364149337401819
    441330614288293119334371415
    4411256142841414932224910
    44143271628621279327291213
    4412277162831100932628910
    44173992028414279334371718
    443886317028196811399377835559
    443886306828196811399377835458
    44398917392821759329377833335
    44398917392821759329377833335
    445111228140093151655
    44143281828311149332341516
    44143261428311149331331112
    445111228140093131455
    4414328182827009330321415
    4415347162827009329311112
    443477276128217516579376826065
    442966235228196814509368735458
    441432102328145011399341443032
    441943133028155412439351554043
    442455204528155410369353574043
    443682337528227917619377836974
    442250173928134611399346493538
    442455184128165714509353574144
    443375286428227918649373785963
    4419431227287254149342452830
    4422501534288295159348523335
    44122737288292793262878
    44327310232818648299363682123
    441534716288291493293189
    44265911252814508299352562022
    4420451432289325159342452830
    443989265928227913469380865155
    4417398182810366219339422224
    443170184128217513469370754245
    44511252331100931718910
    441432112528829149338412729
    4413301023286213119334372527
    Table A4.4. (continued)
    Industrial Countries
    TotalNumberPercentNumberPercent
    inCompilingofDisseminatingof
    GroupFSIsTotalFSIsTotal
    2.12 Ratio of corporate profits to equity21338629
    a. Corporate pre-tax profits2115711257
    b. Corporate post-tax profits2114671152
    2.13 Ratio of corporate debt service costs to profits21943733
    a. Corporate debt service costs2115711152
    2.14 Corporate net foreign currency exposure211500
    a. Gross foreign currency assets21524314
    b. Gross foreign currency liabilities21524314
    c. Net off-balance-sheet foreign currency positions (nominal value) not
    included above2121000
    2.15 Ratio of household debt to GDP21838524
    a. Household total debt2117511362
    b. of which: mortgage debt2113621048
    c. of which: debt to depository corporations2114671362
    2.16 Number of applications for protection from creditors21943838
    3. Profitability and competitiveness
    3.1 Rate of change in the number of depository corporations2114671152
    a. Difference between number of institutions at beginning and end of period2119901571
    b. of which: due to mergers and acquisitions2117811048
    c. of which: due to withdrawals of licenses or closing of units2117811257
    3.2 Ratios of profits to period-average assets (ROA)2113621048
    a. Pretax, after provisions profits2119901676
    b. Posttax profits2120951676
    c. Total period-average on-balance-sheet assets2116861362
    3.3 Ratios of profits to period-average equity (ROE)2114671152
    a. Pretax, after provisions profits2119901571
    b. Posttax profits2120951676
    c. Period-average equity2115861362
    3.4 Ratio of net interest income to profits211362838
    a. Net interest income2120951676
    3.5 Ratio of trading and foreign currency gains/losses to profits211152733
    a. Gains losses in securities and foreign currencies2118861362
    3.6 Ratio of operating costs to net interest income211362838
    a. Operating costs2120951676
    3.7 Ratio of staff costs to operating costs211257838
    a. Staff costs2119901467
    3.8 Spreads between reference lending and deposit rates21838524
    a. Reference lending rate (specify rate)2113621362
    b. Reference deposit rate (specify rate)2113621362
    3.9 Share of assets of the three largest depository corporations in total
    assets of depository corporations211257524
    a. Assets of the three largest depository corporations211990733
    4. Liquidity
    4.1 Distribution of three-month local currency interbank rates for different banks2131415
    4.2 Average interbank bid-ask spread for three-month local currency
    interbank deposits21629314
    4.3 Ratio of liquid assets to total assets211048524
    a. Liquid assets211886733
    4.4 Ratio of liquid assets to liquid liabilities211152524
    a. Liquid liabilities211886733
    Emerging CountriesDeveloping CountriesWorld Total
    TotalNumberPercentNumberPercentTotalNumberPercentNumberPercentTotalNumberPercentNumberPercent
    inCompilingofDisseminatingofinCompilingofDisseminatingofinCompilingofDisseminatingof
    GroupFSIsTotalFSIsTotalGroupFSIsTotalFSIsTotalGroupFSIsTotalFSIsTotal
    4449252831114931516910
    44173911252810365189342452830
    4416361023289324149339422527
    443712281414931314910
    44112549285184149331331920
    443725282700936672
    4411257162811396219327291617
    4411257162810365189326281516
    4492051128725414951819910
    44492528140093131478
    44112581828518009333352123
    4492061428311009325271617
    44133010232827009329312325
    4437122814149313141011
    441330920288298299335382830
    442659225028145012439359634953
    442659204528155413469358624346
    442659204528155412439358674447
    44194315342810364149342452931
    443886276128238214509380865761
    444091296628217513469381875862
    443989225028186410369375814548
    44204516362810364149344473133
    443682255728227912439377835256
    444091296628217511399381875660
    443886235228186410369374804649
    4418411227288293119339422325
    443989276128238211399382885458
    44143281828518149330321617
    44296620452817618299364694144
    4417391023288293119338412123
    443989255728227912439381875357
    4417391023288293119337402123
    443784245528227912439378845054
    44818716289324149325271617
    44296625572813469329355594751
    44276124552813469329353574649
    44173992028621279335381617
    44378416362811397759367723032
    441330716287254149323251213
    4492061428311279318191112
    441943920288296219337402022
    443477204528238214509375814144
    4418411227288295189337402224
    443375204528217512439372773942
    Table A4.4. (concluded)
    Industrial Countries
    TotalNumberPercentNumberPercent
    inCompilingofDisseminatingof
    GroupFSIsTotalFSIsTotal
    4.5 Average maturity of assets2131400
    a. Average remaining maturity of assets (months)2183815
    b. of which: foreign currency assets2162915
    c. Average original maturity of assets (months)2141915
    d. of which: foreign currency assets2141900
    4.6 Average maturity of liabilities2131400
    a. Average remaining maturity of liabilities (months)2183815
    b. of which: foreign currency liabilities2162915
    c. Average original maturity of liabilities (months)2141915
    d. of which: foreign currency liabilities2141900
    4.7 Average daily turnover in the Treasury bill (or central bank bill) market21733419
    4.8 Average bid-ask spread in the Treasury bill (or central bank bill) market2131400
    4.9 Ratio of central bank credit to depository corporations to their total liabilities21629419
    a. Total credit from the central bank to depository corporations2118861467
    b. Total liabilities2118861467
    4.10 Ratio of total customer deposits to total (noninterbank) loans211152419
    a. Customer (noninterbank) deposits2119901571
    b. Total (noninterbank) loans2119901571
    4.11 Ratio of foreign currency customer deposits to total (noninterbank) foreign currency loans21733419
    a. Customer (noninterbank) foreign currency deposits2116761257
    b. Customer (noninterbank) foreign currency loans2116761257
    5. Sensitivity to market risks
    5.1 Ratio of gross foreign currency assets to own funds21629210
    a. Gross foreign currency assets2116761048
    5.2 Ratio of net foreign currency position to own funds21733314
    a. Gross foreign currency assets2116761048
    b. Gross foreign currency liabilities211676943
    c. Net off-balance-sheet foreign currency positions (nominal value) not included above211048210
    5.3 Average interest rate repricing period for assets2162915
    5.4 Average interest rate repricing period for liabilities2162915
    5.5 Duration of assets2152415
    5.6 Duration of liabilities2152400
    5.7 Ratio of gross positions in equities to own funds21838210
    a. Gross holdings of equities2117811152
    5.8 Ratio of net positions in equities to own funds21629314
    a. Gross holdings of equities2117811152
    b. Net off-balance-sheet nominal-value position in equities, not included above21838210
    5.9 Ratio of gross position in commodities to own funds2131415
    a. Gross asset position in commodities2162.915
    5.10 Ratio of net position in commodities to own funds21524210
    a. Gross asset position in commodities2162915
    b. Net off-balance-sheet nominal-value position in commodities, not included above21733210
    Emerging CountriesDeveloping CountriesWorld Total
    TotalNumberPercentNumberPercentTotalNumberPercentNumberPercentTotalNumberPercentNumberPercent
    inCompilingofDisseminatingofinCompilingofDisseminatingofinCompilingofDisseminatingof
    GroupFSIsTotalFSIsTotalGroupFSIsTotalFSIsTotalGroupFSIsTotalFSIsTotal
    44102349285181493181955
    44255711252813468299346492022
    4421488182810367259337401617
    441943920289327259332341718
    441636716269327259329311415
    44102349285181493181955
    44265911252813468299347512022
    4421487162810367259337401516
    442148920289327259334371718
    441636614289327259329311314
    4420451534286215189333352426
    441534818287256219325271415
    4481849286213119320221112
    443477245528155411399367724953
    443375255728186414509369745357
    44153481828725279333351415
    443784327328238213469379856065
    443989327328258914509383896166
    44133061428414149324261112
    443580235228186410369369744548
    413580225028196810369370754447
    4414326142841414932426910
    443784204528196811399372774144
    44143271628414149325271112
    443682214828196810369371764144
    443662214828207110369372774043
    44255712272815548299350542224
    449202528271493171844
    449202528140093161733
    4411256142862127932224910
    441023511286212793212378
    44818511285181493212389
    44255714322813467259355593234
    44714928271493151689
    44225013302812436219351553032
    4411257162862184149325271314
    443712281400937822
    4471651128270093151666
    442512281400938933
    446144928270093141555
    446144928270093151666
    Appendix V Survey on the Use, Compilation, and Dissemination of Macroprudential Indicators

    At the request of its Executive Board, the IMF is conducting a survey of needs and practices related to macroprudential indicators (MPIs)—defined broadly as indicators of the health and stability of financial institutions and of their corporate and household counterparties. The purpose of the survey is to gather information on the use of macroprudential data and on country practices in compiling and disseminating the data. Survey results will be used to identify a set of statistical measures that can be regularly monitored by national authorities in their financial sector assessment work, by the IMF in its surveillance activities, and ultimately by the private sector.

    The survey covers the use, compilation, and dissemination of aggregate data on the financial system, and does not cover information on individual institutions. The survey is intended to solicit the views of respondents and is not intended to gather the actual numerical data on MPIs. All responses are confidential. No information will be released in a form that allows public identification of individual country responses.

    Work by the IMF on MPIs is part of ongoing efforts in the international community to strengthen the architecture of the global financial system. Among the institutions to initiate action in this area, the IMF has been called upon to assess financial system soundness as part of its surveillance work—a process now underway as part of the joint World Bank-IMF Financial Sector Assessment Program (FSAP), introduced in May 1999. The ability to monitor financial soundness presupposes the availability of valid indicators of the health and stability of financial systems—or MPIs. MPIs allow for assessments based on objective measures of financial soundness. If comparable across countries—through adherence to internationally agreed prudential, accounting, and statistical standards—they facilitate monitoring at the global level and permit comparisons of national conditions with global benchmarks. If made publicly available, they enhance access to key financial information and can contribute to strengthening of market discipline.

    The focus of this survey is on indicators of the current health of the financial system, which are primarily derived by aggregating data on the soundness of individual financial institutions. For practical purposes, the survey limits itself to the depository corporations (banking) sector and to their corporate and household counterparties. This focus is appropriate for a first-time survey in this area, but it is recognized that further research is needed on the effects of nondepository financial institutions and securities markets on financial stability.

    MPIs are only one of the tools of macroprudential analysis. The assessment of financial system soundness involves coupling the analysis of MPIs with macroeconomic data on overall economic conditions, information on other financial institutions and markets, and qualitative information about the institutional, policy, and regulatory environment. A variety of techniques can be used in macroprudential analysis, including stress tests, sensitivity analysis, and other methodologies.

    Instructions for Completing the Survey

    The survey is being sent to the central banks of all IMF member countries. The survey has two major parts, which are addressed to different organizations in your country. We would like to request the assistance of your institution in identifying the appropriate respondents for each part of the survey, forwarding the questionnaires, and collecting the responses (see below). We would appreciate the return of the completed survey to us by July 28, 2000.

    Part I: User Questionnaire. This questionnaire is addressed to (1) financial sector supervisors, (2) analysis and policy officials within the central bank or other government authorities involved in the analysis of financial system soundness, and (3) financial market participants and analysts in academia or the private sector. Six copies of the user questionnaire are provided, for distribution by the central bank. The central bank may find it useful to select respondents based on their ability to contribute to a balanced depiction of the needs for MPIs in the country. In order to protect the confidentiality of private sector and academic respondents, we would like to request that the central bank prepare an overview of their responses, which should be returned to the IMF.

    • Part I (a): User Questionnaire: Covers usefulness of specific MPIs and requirements for frequency of compilation.

    • Part I (b): Supplementary Issues: Covers additional questions related to the needs for, and analysis of, MPIs.

    Part II: Compilation and Dissemination Questionnaire. This questionnaire is intended for staff within the monetary or supervisory authorities, or other government institutions, responsible for the compilation of MPIs and components of MPIs, and for their dissemination to the public, where appropriate. The selection of the respondents will depend upon the institutional setup in each country.

    • Part II (a): Compilation and Dissemination Questionnaire: Covers practices related to the compilation and dissemination of MPIs or components of MPIs.

    • Part II (b): Supplementary Issues: Covers technical questions on factors affecting the compilation and dissemination of MPIs or components of MPIs.

    • Part II (c): Valuation Issues: Covers valuation practices affecting MPIs or components of MPIs.

    Coverage: The survey covers the depository corporations subsector, which corresponds roughly to the banking sector. It includes all major divisions of depository corporations, including commercial banks, branches and subsidiaries of foreign banks operating in your country, money market funds that issue deposit-like shares, foreign currency and foreign trade banks, international banking facilities, investment banks, mortgage banking institutions, credit unions, specialized banks, and others as appropriate. Government-owned or -controlled depository corporations are included. For the purpose of this survey, the central bank is excluded. Mutual funds whose liabilities to investors are close substitutes for bank deposits should be included in the survey, but other mutual funds should be excluded.

    MPIs and MPI components: The questionnaires list a number of aggregate indicators that, based on surveillance and empirical work at the IMF and else- where, are considered useful for assessing the health and stability of financial systems. The survey also gathers information on components of MPIs to ascertain whether the underlying information exists to compile MPIs that are not now being compiled. The exact definitions of each indicator or its components may vary from country to country. Respondents are kindly asked to indicate cases where the MPIs used or available are similar to, but not identical to, those presented in the survey.

    Special issues pages: The User Questionnaire and the Compilation and Dissemination Questionnaire each include a page devoted to a series of questions on special issues related to MPIs.

    Additional comments: Respondents may wish to provide supplemental information important for the analysis of financial stability conditions in their country, important indicators not listed in the survey, special conditions that affect compilation and dissemination of MPIs, and alternatives to the definitions and descriptions of MPIs provided in the survey. “Comments” cells for this purpose corresponding to each MPI have been created on the User Questionnaire, Part I (a), and spaces for general comments are provided at the ends of the User Questionnaire Part I (a) and the Compilation and Dissemination Questionnaire Part II (a). Other comments may be entered elsewhere in the spreadsheets by right-clicking your mouse button to select “Insert Comment.”

    Optional reports on other financial institutions and markets: Central banks may also choose to provide separate reports for other financial institutions or markets that are important for the analysis of overall financial stability conditions in their countries. When doing so, please describe the types of institutions or markets covered and why they are important for macroprudential analysis.

    Returning the questionnaire: Responses should be sent to the IMF by July 28, 2000:

    — by Internet to: f2survey@IMF.org

    — or by mail (diskette or paper copy) to:

    • MPI Survey

    • Financial Institutions Division II

    • Statistics Department

    • International Monetary Fund

    • 700 19th Street, N.W.

    • Washington, D.C. 20431, USA

    Contacts regarding the survey: IMF staff may contact you regarding the survey to better understand your needs and compilation practices related to MPIs, or to clarify your responses.

    MPI Survey: Explanation of Terms

    Disclaimer: This glossary is provided for the convenience of the recipients of this survey. The explanations of the terms may not correspond to official definitions or standards.

    Bid-Ask Spread. Difference between the prices at which a market participant is willing to buy and sell a security, such as a Treasury security.

    Basel Capital. Capital as defined in the 1988 Capital Accord of the Basel Committee on Banking Supervision and subsequent revisions. The Accord defines three capital elements. Tier 1 capital consists of permanent shareholders’ equity and disclosed reserves; tier 2 capital consists of undisclosed reserves, revaluation reserves, general provisions and loan-loss reserves, hybrid debt-equity capital instruments, and subordinated long-term debt (over five years); tier 3 capital consists of subordinated short-term debt (over two years).

    Basel Capital Adequacy Ratio. The ratio of capital, as defined above, divided by risk-weighted assets. Risk-weighted assets equals the sum of each category of asset (and on-balance-sheet equivalents for off-balance-sheet positions) multiplied by a weight representing the credit risk associated with each category.

    Basel Capital Deductions. Under the Basel Capital Accord, supervisors may require depository corporations to deduct certain items—such as investments in non-consolidated financial subsidiaries—from capital in order to calculate capital adequacy ratios.

    Capital. Sum of equity capital and reserves. It is the amount by which assets exceed liabilities.

    Consolidation. Refers to the elimination of stocks and flows between institutional units when they are grouped. In particular, a headquarters office and its branch offices and subsidiaries would report stock and flow data consolidated in a single statement. Global consolidation refers to the elimination of stocks and flows occurring across all offices regardless of their country of location. National consolidation refers to the elimination of stocks and flows occurring across all offices that are residents of a specific country.

    Credit. Comprises assets for which the counter-party incurs debt liabilities. Includes loans, securities other than shares, and miscellaneous receivables. Equity instruments, financial derivatives, and lines of credit are excluded.

    Debt Service. Repayments of principal and interest on mortgages or other outstanding debt.

    Depository Corporation. Financial institutions that engage in banking-type activities, whether or not they are called banks or are subject to supervision by a regulatory/supervisory office. The standard statistical definition includes the central bank and other depository corporations, described below, but for the purposes of this survey, the central bank is excluded.

    Duration. Weighted average term-to-maturity of an asset’s cash flow, the weights being the present value of each future cash flow as a percentage of the asset’s full price.

    Equity Capital. Issued and fully paid ordinary shares/common stock and noncumulative perpetual preferred stock (but excluding cumulative preferred stock).

    Financial Derivative (or derivative instrument). Contract whose value is based on the performance of an underlying financial asset, index, or other investment.

    Global Consolidation. An accounting statement including all parts of an enterprise regardless of their locations worldwide (see Consolidation).

    Gross Asset (or Liability) Position in Derivatives. The on-balance-sheet value of derivatives in an asset (or liability) position, plus the fair value of off-balance-sheet derivatives in an asset (or liability) position.

    Interest Income, Net. Difference between the interest income produced by a financial institution’s earning assets (loans and investments) and its interest expenses.

    Loans. Financial assets (1) that are created when a creditor lends funds directly to a debtor; (2) that are evidenced by nonnegotiable documents; or (3) for which no security is issued as evidence of the transaction.

    Mortgage. Loans under which the borrower gives the lender a lien on the property (usually real estate) as collateral for repayment of the loan.

    National Consolidation. An accounting statement encompassing all parts of an enterprise within a country, but excluding branches and subsidiaries outside the country (see Consolidation).

    Net Position. Refers to gross holdings, less gross liabilities, plus net positions under derivatives or other financial commitments in currencies, other financial instruments, or commodities. For example, a net foreign currency position equals gross foreign currency-denominated assets, less gross foreign currency-denominated liabilities, plus the net position under foreign currency financial derivatives and other financial commitments.

    Nominal Value of Financial Derivatives. The stated contract value of the underlying item delivered under a financial derivative. For example, an option that has a nominal value of 100,000 francs will deliver 100,000 francs when exercised.

    Nonperforming Loan (NPL). A loan is said to be nonperforming when the principal and/or interest payments on it according to the original terms of the borrower’s loan agreement are past due (e.g., by 90 days or more).

    Operating Costs. The sum of interest and noninterest (fees and commissions, trading losses, and salary and other current costs) expenses.

    Other Depository Corporations. Banks (other than the central bank) and similar institutions that carry out banking functions with the public. A full definition is provided in the System of National Accounts 1993. The definition corresponds with monetary financial institutions as defined in the European System of Account 1995. It includes a variety of institutions regardless of whether they are called banks or are subject to banking supervision, including commercial banks, branches, and subsidiaries of foreign banks operating in the country, money market funds that issue deposit-like shares, foreign currency and foreign trade banks, international banking facilities, investment banks, Islamic banks, mortgage banking institutions, credit unions, specialized banks, and others as appropriate. Government-owned or -controlled depository corporations are included. Mutual funds whose liabilities to investors are close substitutes for bank deposits are included, but other mutual funds are excluded.

    Own Funds. Equity capital and reserves.

    Profits. Sum remaining after all expenses have been met or deducted from income. Both pretax and post-tax concepts are used.

    Reference Rate. A specific lending or borrowing rate considered representative of overall rates that is used as a benchmark for evaluating conditions in interest rate markets.

    Related Entities. Affiliated enterprises, owners and management of an enterprise, and individuals related to owners and managers.

    Repricing Period for Interest Rates. The average period (usually expressed in months) until existing financial instruments are redeemed or until the interest rates on financial instruments are reset or reindexed.

    Turnover. Volume of securities traded during a period (e.g., daily) as a percentage of total securities listed on an exchange.

    Table A5.1.MPI Survey – Part 1 (a): User Questionnaire
    Check type of user: Supervisor—Is aggregate information on this MPI useful:How frequently should this MPI be compiled to meet user’s needs?
    Policy/Research—4 – very usefulM – monthly
    Market Participant/Other—3 – usefulQ – quarterly
    2 – sometimes usefulS – semi-annually
    1 – not usefulA – annually
    MPIX – no opinionO – other (specify)Comments
    1. Capital adequacy_________________________________
    1.1 Basel capital adequacy ratio_________________________________
    1.1a Ratio of Basel tier I capital to risk-weighted assets_________________________________
    1.1b Ratio of Basel tier I + tier II capital to risk-weighted assets_________________________________
    1.1c Ratio of Basel tier I + II + III capital to risk-weighted assets_________________________________
    1.2 Distribution of capital adequacy ratios (number of institutions
    with in specified capital adequacy ratio ranges)_________________________________
    1.3 Ratio of total on-balance-sheet assets to own funds_________________________________
    2. Asset quality_________________________________
    (a) Lending institution_________________________________
    2.1 Distribution of on-balance-sheet assets, by Basel risk-weight category_________________________________
    2.2 Ratio of total gross asset position in financial derivatives to own funds_________________________________
    2.3 Ratio of total gross liability position in financial derivatives to own funds_________________________________
    2.4 Distribution of loans by sector_________________________________
    2.4a of which: for investment in commercial real estate_________________________________
    2.4b of which: for investment in> residential real estate_________________________________
    2.5 Distribution of credit: extended by sector_________________________________
    2.6 Distribution of credit extended by country or region_________________________________
    2.7 Ratio of credit to related entities to total credit_________________________________
    2.8 Ratio of total large loans to own funds_________________________________
    2.9 Ratio of gross nonperforming loans to total assets_________________________________
    2.10 Ratio of nonperforming loans net of provisions to total assets_________________________________
    (b) Borrowing institution_________________________________
    2.11 Ratio of corporate debt to own funds (“debt-equity ratio”)_________________________________
    2.12 Ratio of corporate profits to equity_________________________________
    2.13 Ratio of corporate debt service costs to total corporate income_________________________________
    2.14 Corporate net foreign currency exposure_________________________________
    2.15 Ratio of household total debt to GDP_________________________________
    2.15a of which: mortgage debt to GDP_________________________________
    2.15b of which: debt owed to depository corporations to GDP_________________________________
    2.16 Number of applications for protection from creditors_________________________________
    3. Profitability and competitiveness_________________________________
    3.1 Rate of change in number of depository corporations_________________________________
    3.2 Ratio of profits to period-average assets (ROA)_________________________________
    3.3 Ratio of profits to period-average equity (ROE)_________________________________
    3.4 Ratio of net interest income to total income_________________________________
    3.5 Ratio of trading and foreign exchange gains/losses to total income_________________________________
    3.6 Ratio of operating costs to net interest income_________________________________
    3.7 Ratio of staff costs to operating coses_________________________________
    3.8 Spread between reference lending and deposit rates_________________________________
    3.9 Share of assets of the three largest depository corporations
    in total assets of deposirory corporations_________________________________
    4. Liquidity_________________________________
    4.1 Distribution of three-month local-currency interbank ratesfor different
    depository corporations_________________________________
    4.2 Average interbank bid-ask spread for three-month local-currency deposits_________________________________
    4.3 Ratio of liquid assets to total assets_________________________________
    4.4 Ratio of liquid assets to liquid liabilities_________________________________
    4.5 Average maturity of assets_________________________________
    4.6 Average maturity of liabilities_________________________________
    4.7 Average daily turnover in the treasury bill for central bank bill) market_________________________________
    4.8 Average bid-ask spread in the treasury bill for central hank bill) market_________________________________
    4.9 Ratio of central bank credit to depository corporations to depository
    corporations’ total liabilities_________________________________
    4.10 Ratio of customer deposits to total (noninterbank) loans_________________________________
    4.11 Ratio of customer foreign currency deposits to total (noninterbank)
    foreign currency loans_________________________________
    5. Sensitivity to market risks_________________________________
    5.1 Ratio of gross foreign currency assets to own funds_________________________________
    5.2 Ratio of net foreign currency position to own funds_________________________________
    5.3 Average interest rate repricing period for assets_________________________________
    5.4 Average interest rate repricing period for liabilities_________________________________
    5.5 Duration of assets_________________________________
    5.6 Duration of liabilities_________________________________
    5.7 Ratio of gross equity position to own funds_________________________________
    5.8 Ratio of net equity position to own funds_________________________________
    5.9 Ratio of gross position in commodities to own funds_________________________________
    5.10 Ratio of net position in commodities to own funds_________________________________
    Additional Comments This space is for any additional comments you may wish to provide, such as MPIs or topics you address that are not covered in the survey, MPIs defined differently than in the surveyor concerns over data quality or availability. We are also interested in views regarding MPIs or topics that are not relevant for your needs or that are seen as impractical.
    Table A5.2.MPI Survey—Part I (b): Supplementary Issues
    1.Macroprudential research
    Are you carrying out, or planning, research on the health and stability of the financial system of Is this research focused on the condition of individual institutions, the banking sector as a whole, or other sectors? What analytical or statistical frameworks are employed in this research?
    2.Coverage of financial institutions
    a. Other important institutions, markets, and financial activities
    In addition to depository corporations, what other markets, institutions, and financial activities are important in the overall analysis of the soundness and condition of the financial sector?
    b. Aggregation of depository institutions
    Within the definition of “depository corporations” used in this survey, is there a need for further disaggregation or special analysis of specific subsectors for example, for foreign banks, international banking facilities, internationally active banks as covered under the Basel standards, mutual funds, or others?
    c. Systemically important institutions
    What techniques are used to evaluate the condition of systemically important institutions in your country? How are systemically important institutions identified? Are they subject to enhanced statistical requirements or disclosure requirements?
    3.MPI norms, benchmarks, and Thresholds
    What norms or benchmark Levels or ranges are used for MPIs? Have values been identified for warning level thresholds?
    4.Presentation of MPIs
    Please indicate your preferences regarding the mode for presentation of MPIs (e.g., as single point estimates, ratios, growth rates, measures of dispersion, standard deviations. etc.).
    5.Composite measures
    Please indicate whether you use. or plan to use, composite measures of the condition of the financial system. What types of information are used to construct such measures?
    6.Business surveys
    Do you make use of business survey results (general surveys of business sentiment or specialized surveys on financial institutions) to supplement your analysis of MPIs?
    Table A5.3.MPI Survey—Part II (a): Compilation and Dissemination Questionnaire
    Compilation
    PeriodicityTimeliness
    M – monthly
    Q – quarterly
    S – semi- annually
    A – annuallyAverage number of working
    O – other (specify)days after reference period
    MPIs and ComponentsX – not compiledX - not compiled
    1. Capital adequacy
    1.1 Basel capital adequacy ratio______________________________
    a. Basel tier 1 capital (net of deductions)______________________________
    b. Basel tier II capital (net of deductions)______________________________
    c. Basel tier III capital (net of deductions)______________________________
    d. Risk-weighted assets______________________________
    1.2 Distribution of capital adequacy ratios______________________________
    a. Number of institutions with Basel capital ratios falling into specified ranges:
    Specify range used:_____% to_____%, etc.       specify______________________________
    b. Assets of institutions within each range______________________________
    c. Assets by type of depository corporation:______________________________
    c.1 Headquartered in the country______________________________
    of which: internationally active______________________________
    of which: state-owned or -controlled______________________________
    c.2 Headquartered in other countries______________________________
    1.3 Ratio of total on-balance-sheet assets to own funds______________________________
    a. Total on-balance-sheet assets______________________________
    b. Own funds (equity capital and reserves)______________________________
    2. Asset quality
    (a) Lending institution
    2.1 Distribution of on-balance-sheet assets by Basel risk-weight category______________________________
    a. Assets per Basel risk-weight category______________________________
    2.2 Ratio of total gross asset position in financial derivatives to own funds______________________________
    a. Total gross asset position in derivatives______________________________
    b. of which: off-balance-sheet position______________________________
    2.3 Ratio of total gross liability position in financial derivatives to own funds______________________________
    a. Total gross liability position in derivatives______________________________
    b. of which: off-balance-sheet position______________________________
    2.4 Distribution of loans by sector______________________________
    a. Loans by national account sectors______________________________
    of which:______________________________
    a.1. Loans for investment in commercial real estate______________________________
    a.2. Loans for investment in residential real estate______________________________
    a.3. Loans to other key sectors     specify______________________________
    b. Total loans______________________________
    2.5 Distribution of credit extended by sector______________________________
    a. Credit by national account sectors______________________________
    b. Total credit______________________________
    2.6 Distribution of credit by country or region______________________________
    a. Loans by country or region______________________________
    2.7 Ratio of credit to related entities to total credit______________________________
    a. Credit to related entities______________________________
    2.8 Ratio of total large loans to own funds______________________________
    a. Total large loans (specify size range)     specify______________________________
    2.9 Ratio of gross nonperforming loans to total assets______________________________
    a. Gross nonperforming loans______________________________
    2.10 Ratio of nonperforming loans net of provisions to total assets______________________________
    a. Nonperforming loans net of provisions______________________________
    DisseminationData Sources
    PeriodicityTimelinessSupervisoryStatisticalOther (specify)
    M – monthly
    Q – quarterly
    S – semi- annually(Indicate type of consolidation used)
    A – annuallyAverage number of workingG = global consolidation
    O – other (specify)days after reference periodN = national consolidation
    X – not disseminatedX - not disseminatedB = both national and global consolidation
    ___________________________________________________________________________
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    Table A5.3. (continued)
    Compilation
    PeriodicityTimeliness
    M – monthly
    Q – quarterly
    S – semi- annually
    A – annuallyAverage number of working
    O – other (specify)days after reference period
    MPIs and ComponentsX – not compiledX - not compiled
    (b) Borrowing institution
    2.11 Ratio of corporate debt to own funds (“debt-equity ratio”)______________________________
    a. Total corporate debt______________________________
    b. Corporations’ own funds______________________________
    2.12 Ratio of corporate profits to equity______________________________
    a. Corporate pre-tax profits______________________________
    b. Corporate post-tax profits______________________________
    2.13 Ratio of corporate debt service costs to profits______________________________
    a. Corporate debt service costs______________________________
    2.14 Corporate net foreign currency exposure______________________________
    a. Gross foreign currency assets______________________________
    b. Gross foreign currency liabilities______________________________
    c. Net off-balance-sheet foreign currency positions (nominal value
    not included above______________________________
    2.15 Ratio of household debt to GDP______________________________
    a. Household total debt______________________________
    b. of which: mortgage debt______________________________
    c. of which: debt to depository corporations______________________________
    2.16 Number of applications for protection from creditors______________________________
    3. Profitability and competitiveness
    3.1 Rate of change in the number of depository corporations______________________________
    a. Difference between number of institutions at beginning and end of period______________________________
    b. of which: due to mergers and acquisitions______________________________
    c. of which: due to withdrawals of licenses or closing of units______________________________
    3.2 Ratios of profits to period-average assets (ROA)______________________________
    a. Pretax, after provisions profits______________________________
    b. Posttax profits______________________________
    c. Total period-average on-balance-sheet assets______________________________
    3.3 Ratios of profits to period-average equity (ROE)______________________________
    a. Pretax, after provisions profits______________________________
    b. Posttax profits______________________________
    c. Period-average equity______________________________
    3.4 Ratio of net interest income to profits______________________________
    a. Net interest income______________________________
    3.5 Ratio of trading and foreign-currency gains/losses to profits______________________________
    a. Gains/losses in securities and foreign currencies______________________________
    3.6 Ratio of operating costs to net interest income______________________________
    a. Operating costs______________________________
    3.7 Ratio of staff costs to operating costs______________________________
    a. Staff costs______________________________
    3.8 Spreads between reference lending and deposit rates______________________________
    a. Reference lending rate    specify______________________________
    b. Reference deposit rate    specify______________________________
    3.9 Share of assets of the three largest depository corporations in total
    assets of depository corporations______________________________
    a. Assets of the three largest depository corporations______________________________
    DisseminationData Sources
    PeriodicityTimelinessSupervisoryStatisticalOther (specify)
    M – monthly
    Q – quarterly
    S – semi- annually(Indicate type of consolidation used)
    A – annuallyAverage number of workingG = global consolidation
    O – other (specify)days after reference periodN = national consolidation
    X – not disseminatedX - not disseminatedB = both national and global consolidation
    ___________________________________________________________________________
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    Table A5.3. (continued)
    Compilation
    PeriodicityTimeliness
    M – monthly
    Q – quarterly
    S – semi- annually
    A – annuallyAverage number of working
    O – other (specify)days after reference period
    MPIs and ComponentsX – not compiledX - not compiled
    4. Liquidity
    4.1 Distribution of three-month local-currency interbank rates for different bank______________________________
    4.2 Average interbank bid-ask spread for three-month local currency interbank deposits______________________________
    4.3 Ratio of liquid assets to total assets______________________________
    a. Liquid assets______________________________
    4.4 Ratio of liquid assets to liquid liabilities______________________________
    a. Liquid liabilities______________________________
    4.5 Average maturity of assets______________________________
    a. Average remaining maturity of assets (months______________________________
    b. of which: foreign currency assets______________________________
    c. Average original maturity of assets (months)______________________________
    d. of which: foreign currency assets______________________________
    4.6 Average maturity of liabilities______________________________
    a. Average remaining maturity of liabilities (months)______________________________
    b. of which: foreign currency liabilities______________________________
    c. Average original maturity of liabilities (months______________________________
    d. of which: foreign currency liabilitie______________________________
    4.7 Average daily turnover in the Treasury bill (or central bank bill) market______________________________
    4.8 Average bid-ask spread in the Treasury bill (or central bank bill) market______________________________
    4.9 Ratio of central bank credit to depository corporations to their total liabilities______________________________
    a. Total credit from the central bank to depository corporations______________________________
    b. Total liabilities______________________________
    4.10 Ratio of total customer deposits to total (noninterbank) loans______________________________
    a. Customer (noninterbank) deposits______________________________
    b. Total (noninterbank) loans______________________________
    4.11 Ratio of foreign currency customer deposits to total (noninterbank)
    foreign currency loans______________________________
    a. Customer (noninterbank) foreign currency deposits______________________________
    b. Customer (noninterbank) foreign currency loans______________________________
    5. Sensitivity to market risks
    5.1 Ratio of gross foreign currency assets to own funds______________________________
    a. Gross foreign currency assets______________________________
    5.2 Ratio of net foreign currency position to own funds______________________________
    a. Gross foreign currency assets______________________________
    b. Gross foreign currency liabilities______________________________
    c. Net off-balance-sheet foreign currency positions (nominal value) not included above______________________________
    5.3 Average interest rate repricing period for assets______________________________
    5.4 Average interest rate repricing period for liabilities______________________________
    5.5 Duration of assets______________________________
    5.6 Duration of liabilities______________________________
    5.7 Ratio of gross position in equities to own funds______________________________
    a. Gross holdings of equities______________________________
    DisseminationData Sources
    PeriodicityTimelinessSupervisoryStatisticalOther (specify)
    M – monthly
    Q – quarterly
    S – semi- annually(Indicate type of consolidation used)
    A – annuallyAverage number of workingG = global consolidation
    O – other (specify)days after reference periodN = national consolidation
    X – not disseminatedX - not disseminatedB = both national and global consolidation
    ___________________________________________________________________________
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    Table A5.3. (continued)
    Compilation
    PeriodicityTimeliness
    M – monthly
    Q – quarterly
    S – semi- annually
    A – annuallyAverage number of working
    O – other (specify)days after reference period
    MPIs and ComponentsX – not compiledX - not compiled
    5.8 Ratio of net position in equities to own funds
    a. Gross holdings of equities______________________________
    b. Net off-balance-sheet nominal-value position in equities not included above______________________________
    5.9 Ratio of gross position in commodities to own funds______________________________
    a. Gross asset position in commodities______________________________
    5.10 Ratio of net position in commodities to own funds______________________________
    a. Gross asset position in commodities______________________________
    b. Net off-balance-sheet nominal-value position in commodities not included above______________________________
    Additional Comments: This space is for any additional comments you may wish to provide, such as MPIs or topics you address that are not covered in the survey, MPIs defined differently than in the survey, or concerns over data quality or availability. We are also interested in views regarding MPIs or topics that are not relevant for your needs or that are seen as impractical.
    DisseminationData Sources
    PeriodicityTimelinessSupervisoryStatisticalOther (specify)
    M – monthly
    Q – quarterly
    S – semi- annually(Indicate type of consolidation used)
    A – annuallyAverage number of workingG = global consolidation
    O – other (specify)days after reference periodN = national consolidation
    X – not disseminatedX - not disseminatedB = both national and global consolidation
    ___________________________________________________________________________
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    Table A5.4.MPI Survey—Part II (b): Supplementary issues
    1.Institutional coverage
    a. Supervisory responsibility over financial institutions
    Please list the institutions that have supervisory responsibility for various segments of the financial system and financial activities.
    b. Institutional coverage
    Please specify the institutional coverage for each data source (e.g., supervisory, statistical, other). Coverage of branches and subsidiaries of foreign financial institutions operating in the country should be described. Also describe coverage of offshore banking operations.
    2.Loon classification and provisioning rules
    a. Classification rules
    Please describe the system for grading nonperforming loans.
    b. Income recognition interest accrual rules
    Please describe practices and standards for recognition of income, accrual of interest, or other changes in value.
    c. Loan-loss provisioning rules
    Please describe the rules governing the recognition and valuation of provisions.
    d. Collateral
    Please describe requirements and valuation rules for collateral (including real estate).
    3.Capital classification rules
    Please describe the components of tier 1. tier 11. and (if applicable) tier III capital, and the deductions for each category.
    4.Other issues
    Please describe practices for recognition and instrument classification for repurchase agreements, securities lending, bankers’ acceptances, and financial derivatives.
    5.Real estate lending
    Please describe the categories of lending that are recorded as real estate lending, such as loans for the purpose of real estate construction, loans to construction companies, loans collateralized by real estate, mortgage loans, etc. What real estate price information is available?
    6.Data dissemination
    a. Restrictions on dissemination of aggregated data
    Please describe legal and other restrictions on the dissemination of the MPIs and their components to the public.
    b. Restrictions on dissemination of individual institutions’ data
    Please describe legal and other restrictions on the disclosure of information on individual financial institutions (including any restrictions on provision of information to the IMF).
    Table A5.5.MPI Survey—Part II (c): Valuation Issues
    PriceForeign Currency-Denominated Instruments
    Reference priceFrequency of revaluationsConversion exchange rateFrequency of revaluations
    H =historic costE = market rate (end period)
    M =market price/fair valueA = market rate (per. average)
    L = lower of cost or marketB = on-balance-sheet dateG = official raceB = on-balance-sheet date
    O = other (specify)O = other (specify)O = other (specify)O = ether (specify)
    1. Supervisory Data Sources
    a. Deposits____________________________________________________________
    b. Loans____________________________________________________________
    c. Securities (other than shares)____________________________________________________________
    d. Shares and other equity____________________________________________________________
    e. Financial derivatives____________________________________________________________
    f. Miscellaneous receivables/payables____________________________________________________________
    g. Nonfinancial assets (real estate and other assets)____________________________________________________________
    2. Statistical Data Sources
    a. Deposits____________________________________________________________
    b. Loans________________________________________________________
    c. Securities (other than shares)________________________________________________________
    d. Shares and other equity________________________________________________________
    e. Financial derivatives________________________________________________________
    f. Miscellaneous receivables/payables________________________________________________________
    g. Nonfinancial assets (real estate and other assets)________________________________________________________
    3. Other Data Sources
    a. Deposits________________________________________________________
    b. Loans________________________________________________________
    c. Securities (other than shares)________________________________________________________
    d. Shares and other equity________________________________________________________
    e. Financial derivatives________________________________________________________
    f. Miscellaneous receivables/payables________________________________________________________
    g. Nonfinancial assets (real estate and other assets)________________________________________________________

    The FSAP was launched jointly by the IMF and the World Bank in May 1999, The program is designed to identify financial system strengths and vulnerabilities and to help to develop appropriate polity responses. Financial System Stability Assessments (FSSAs) are prepared by IMF staff in the context of Article IV consultations, by drawing on the FSAP findings, for discussion in the IMF Executive Board, In the World Bank, the FSAP reports provide the basis for producing Financial Sector Assessments and formulating financial sector development strategies. Sec IMF (2001a, b) and Hilbers (2001).

    See IMF (2000c, 2001b).

    The survey explicitly listed around 60 indicators, identified in earlier work.

    In some countries—for instance, Finland, Hungary, Iceland, Norway, Sweden, and the United Kingdom—central banks publish special reports dealing with financial stability issues.

    Macroprudemial analysis focuses on the health and stability of financial systems, whereas microprudential analysis deals with the condition of individual financial institutions.

    Macrocconomic indicators are not included in this definition, given their different source and character. They are, of course, part of the broader macroprudential analysis (see Figure 2.1), however, both as leading indicators of financial sector problems in their own right and as inputs into stress testing. See also Evans, Leone, Gill, and Hilbers (2000).

    For the purpose of estimation of a robust early warning system, a variable must be reasonably comparable over time and across countries. See Berg, Borensztein, Milesi-Ferretti, and Patillo (1999).

    Capital adequacy, asset quality, management soundness, earnings, liquidity, sensitivity to market risk.

    See Carson (2001) for a discussion of the factors affecting data quality.

    The linkages between the development of a sound banking system and well-functioning banking regulation and supervision are discussed in Sundararajan (1999). See also Sundararajan, Marston, and Basu (2001).

    For a description of a “net risk” approach to risk assessment in the context of dynamic banking supervisory practices, see Office of the Superintendent of Financial Institutions (1999).

    The importance of a healthy balance of quantitative and qualitative information in order to provide a meaningful picture of the extent and nature of financial risks has been recently highlighted by the Multidisciplinary Working Group on Enhanced Disclosure of the Financial Stability Forum (2001).

    It should be noted, however, that regulatory factors could influence the size and movement of FSIs. notably through the establishment of minimum regulatory ratios.

    The incentive audit approach, outlined by Chat and Johnston (2000), looks at three factors that affect the risk-taking and monitoring behavior of participants (investors, borrowers, and intermediaries) at the core of the financial system: (1) market structure and the availability of financial instruments that affect market discipline; (2) government safety nets, including implicit and explicit exchange rate and deposit/investor guarantees; and (3) the legal and regulatory framework, including high quality enforcement.

    See, for example. Ball (2001).

    While FSAP reports provide detailed assessments of strengths and vulnerabilities, observance of standards, institutional structures, and overall stability and developmental needs, the focus of FSSAs is on financial system stability issues of significance for macroeconomic performance and policies. For details, see IMF (2001b). Summary assessments of financial sector standards and codes from the FSAP process are included in the FSSA and are also issued as Reports on Observance of Standards and Codes (ROSCs). See IMF (2001c).

    Systemic liquidity provision and the functioning of interbank markets can also affect the ability of the system to absorb shocks.

    For a recent discussion of procyclicality in the financial system, see also Borio, Furfine, and Lowe (2001).

    Compared with exchange-traded derivatives markets, OTC derivatives markets—in which transactions are not cleared through a centralized clearinghouse—have the following features: management of credit risk is decentralized at the level of individual institutions; there are no formal centralized limits on individual positions, leverage, or margining; there are no formal rules for risk and burden sharing; and there are no formal rules or mechanisms for ensuring market stability and integrity. On OTC derivatives markets, see also IMF (2000b), Chapter IV.

    The Basel Committee’s 1988 risk measurement framework assigns all bank assets to one of four risk-weighting categories, ranging from zero to 100 percent, depending on the credit risk of the borrower. The Basel Capital Accord requires internationally active banks in Bank for international Settlements (BIS) member countries to maintain a minimum ratio of capital to risk-adjusted assets of 8 percent.

    Tier 1 capital consists of permanent shareholders’ equity and disclosed reserves; tier 2 capital consists or undisclosed reserves, revaluation reserves, general provisions and loan-loss reserves, hybrid debt-equity capital instruments, and subordinated long-term debt (over five years); tier 3 capital consists of subordinated debt of shorter maturity (two to five years). See Basel Committee (I98K, 1998).

    The Basel Capital Accord allows banks to include general provisions in tier 2 capital. up to 1.25 percent of (risk) assets.

    Although accounting and prudential standards usually require the deduction of provisions from loans, international statistical standards recommend recording loans gross of provisions until the loan is written off.

    Credit (assets for which the counter-party incurs debt liabilities) is a more comprehensive concept than loans, and includes loans, securities other than shares (e.g., bonds), and miscellaneous receivables.

    Collateral could he taken into account in establishing provisions and a conservative value of the collateral could he deducted from the loan amount.

    The accounting treatment of provisions must be considered when looking at NPL ratios. As indicated above, in most G-10 countries, local accounting and prudential standards require banks to deduct specific provisions from loans, which adjusts the value of loans in response to changes in quality. In these cases, NPLs should be measured as a percentage of gross, rather than net, loans.

    See Baldwin and Kourelis (forthcoming).

    Exposure refers to one or more loans to the same individual or economic group. There is no standard definition of “large.” In some countries, it refers to exposures exceeding 10 percent of regulatory capital.

    The delta-normal I method uses the linear derivative to approximate the change in portfolio value and the normal distribution as the underlying statistical model of asset returns.

    Schinasi, Craig, Drees, and Kramer (2000) report that in 1998 contracts between the major players accounted for roughly one-half of notional principal in interest rate derivatives and one-third in foreign exchange derivatives.

    The ratios can he calculated with various income measures—for example, before or alter provisions and before or after tax charges and I net) extraordinary items.

    Indicators of the maturity structure should distinguish between domestic and foreign liabilities and indicate the currency denomination of the liabilities.

    The need to Further develop broad principles for quantifying funding liquidity risk was recently highlighted by the Multidisciplinary Working Group on Enhanced Disclosure of the Financial Stability Forum. See Financial Stability Forum (2001).

    See Committee on the Global Financial System (1999). Notably. in times of particular financial distress, dealers may not be willing to make a market at all in certain securities. Such instances can be captured through surveys of primary security dealers. See Nelson and Passmore (2001).

    The turnover ratio is the ratio of the average trading volume over a given period of time to the outstanding volume of securities.

    See Box 4.1 for further discussion of sectoral balance sheet analysis.

    Moreover. governments may feel tempted to shift to central banks the cost of bank resolution, at least partially, so as to hide these costs within the central bank balance sheet.

    Such transactions may also have important implications for the conduct of monetary policy and the financial position of the central bank, as described in Jácome and Madrid (forthcoming).

    See Chapter V for a discussion of the stress tests that are used in measuring sensitivity to market risk.

    See Basel Committee (1997. 1998).

    Duration is the weighted average life of an asset or liability (the weights being the present value of each cash flow as a percentage of the price of the asset or liability). Duration adjusts maturity to account for the size and timing of payments between now and maturity (e.g., the duration of a zero-coupon bond is equal to its maturity). In general, duration rises with maturity, falls with the frequency of coupon payments, and falls as the yield rises. The greater the duration of a bond, the greater is its volatility. For working purposes, duration can be defined as the approximate percentage change in price for a 1 percent change in yield. A discussion of the duration model can be found in Chapter V.

    For details on the methodology, see Basel Committee (1998).

    A related issue, which is nut explicitly covered in this paper, is that of offshore financial centers and the risks involved in the operations of these centers through links to domestic financial systems. See, for instance, IMF (2000e).

    In many countries, due to the nature of the instruments issued by NBFIs. their liabilities are not included in the narrow monetary aggregates (M1 and M2), which typically include the transferable deposit liabilities of the banking sector (mostly commercial hanks). The liabilities of NBFIs are often included in wider monetary aggregates (M1 and M4). or are not included in monetary aggregates at all. In countries with substantial nonbank quasi-deposits, the wider monetary aggregates (M3 and M4) need to be monitored for monetary policy purposes. See IMF (2000f).

    The Financial Stability Forum recently recommended disclosure of a series of indicators for securities firms, insurance companies, and leveraged investment funds, in addition to banks. These included indicators of market risk, funding liquidity risk, and credit risk, as well as information of the nonlife insurance sector. These indicators are aimed at disclosure at the individual institution level. The Forum recognizes the need for further development of risk assessment concepts and methods in this area. See Financial Stability Forum (2001).

    There is a vast literature on the determinants of corporate leverage and its relevance to probability of financial distress and corporate credit ratings. See Rajan and Zingales (1995).

    See Fitch IBCA (1998). and Standard and Poor’s (2000).

    Methods to mark asset values to market can be used, although they have shortcomings even at the individual firm level, and are hardly feasible at the aggregate level. Similarly, market values of equity are sometimes used, but these also have shortcomings as stock prices have a short-term bias, are correlated to alternative investment opportunities and are highly volatile, and may ultimately not reflect a company’s ability to service its debt.

    Interest expenses should be calculated to include leasing costs, ideally, earnings should be adjusted to arrive at cash flow available for operations (e.g., by amending for noncash provisions and contingency reserves, asset write-downs that do not affect cash, and blocked funds overseas). See Moody’s (1998).

    A recent study by Moody’s (2000) concludes that the use of EBITDA interest coverage ratios can be misleading, notably as they (1) overstate cash flow in periods of working capital growth; (2) can be manipulated through aggressive accounting policies: (3) do not consider the amount of required reinvestment; and (4) say nothing about the quality of earnings, EBITDA, however, remains a legitimate tool for analyzing poorly performing corporations.

    Ratios such as funds flow from operations to total debt (and other off-balance-sheet liabilities) are more meaningful in assessing long-term profitability trends of corporate entities and sectors.

    In some cases, strengthened financial sector supervision may create relative incentives for firms to borrow abroad, thereby shifting foreign exchange exposure-related vulnerabilities to the corporate sector.

    In the case of foreign exchange (as well as interest rate) exposures, swaps, caps, and hedges are tools that can significantly affect corporate financial positions.

    Household consumption patterns can also be a leading indicator of corporate and financial sector distress. For example, there is some evidence that consumers react at an early stage to macro-economic shocks such as higher interest rates, notably in their demand for housing and consumer durables. See Bernanke and Gertler (1995).

    For instance, a recent paper by De Ruiter and Smant (1999) finds that in the Netherlands high debt ratios do not slow durables consumption.

    In particular, portfolio diversification reduces risks to house-hold income. This underscores the need to monitor the composition of household balance sheets, not just net wealth, to better gauge vulnerabilities.

    For a discussion of bank liquidity indicators, see Chapter III.

    IMF (2000a), in particular Chapter III on “Asset Prices and the Business Cycle,”

    Real estate markets are characterized by heterogeneity, consisting of a series of geographical and sectoral submarkets that lack a central trading market. No two properties are identical and information on market transactions is often limited and not generally available. Also, real estate markets are typically characterized by infrequent trades, a negotiated pricing process, large transaction costs, and very rigid supply. In contrast to stock markets and other financial markets there is, therefore, no clear market price.

    Cross-country comparisons of real estate developments, how ever, are complicated by differences among countries in financing structure, tax structure, and the use of real estate as collateral.

    Commercial real estate prices were not analyzed due to the scarcity of data.

    Sec Chapter V for details.

    In particular, some commercial property indices cover only offices, while others include retail property as well as property used for production and storage. There are also technical differences, such as the weights used to combine different localities and qualities of property, as well as whether the mean or the median price in the sample is chosen.

    Commonly tested shocks include a slowdown in economic growth, balance of payments shocks, and changes in inflation, interest rates, and exchange rates. Equity and security price shocks may also be important, particularly in the most advanced countries where banks and hank borrowers have significant capital market exposures, it is important to identify shocks that are representative of past country experiences, or that are justified by observed volatilities and correlations in the data.

    The Committee on the Global Financial System (CGFS) has recently undertaken a global census of stress tests in use at major financial institutions. Sec CGFS (2000 and 2001).

    The Monte Carlo method is a stochastic technique that generates prices by performing repealed statistical sampling experiments from random numbers. It approximates the market’s price generating process.

    For instance, results from the most complex simulation techniques may be strongly mode I-dependent and sensitive to the parameter used.

    For a detailed discussion of these approaches, see Blaschke, Jones, Majnoni, and Martinez Peria (2001).

    In the presence of large, complex financial institutions with insurance activities, however, attention should also be paid to vulnerabilities arising from the nonbanking activities of the group.

    For a complete review of this literature, see Evans, Leone, Gill, and Hilbers (2000).

    For examples of market-based indicators for the United Slates, see Nelson and Passmore (2001).

    For instance, the default mode approach uses an average default probability and the mark-to-market approach uses a default transition matrix based on the borrower’s credit rating.

    Theses include J.P. Morgan’s Creditmetrics, Credit Suisse’s CreditRisk+, and KMV’s Credit Monitor Model.

    For the simple repricing model, this requires the sorting of assets and liabilities according to their time to repricing for floating rate instruments, and remaining time to maturity for fixed rate instruments; net assets are then classified in a limited number of time categories or “buckets.” For the duration model, it is necessary to know the timing of future cash flows, which may also be grouped into different buckets.

    See, for instance, Saunders (2000).

    For example, the normal distribution is typically used, but it the true distribution has fatter tails, the VaR may underestimate possible losses. Moreover, linear approximations are commonly used to estimate changes in the value of the portfolio, but this may underestimate the VaR if movements in asset prices are large and the portfolio includes many assets with nonlinear pay-offs (e.g., options).

    Appendix IV, Table A4.3 provides a detailed matrix with usefulness scores for FSIs by type of user and type of economy.

    For example, among the Group II FSls. six have average usefulness scores in emerging and developing countries that are markedly higher than those in industrial countries.

    Appendix IV, Table A4.4 provides detailed information on the compilation and dissemination of FSIs.

    Components refer to the numerators or denominators that allow an indicator to be compiled or elements of the numerator or denominator that allow each, and hence the indicator itself, to be compiled.

    Table 4.3 reports figures for the least available component of each FSI because all components must be available in order to compile the FSI.

    A summary presentation of the 30 FSIs is shown in Appendix IV. Table A4.1.

    Several countries indicate that some FSIs are disseminated while their components are not. If these FSIs are included with the pool of FSIs whose components are disseminated, there would he 13 FSIs altogether (instead of the 8 indicated above) that are potentially available for dissemination.

    For example, the results suggest that systems to compile statistics on financial derivatives and the financial condition of non-financial sectors are not widely available, as indicated by the limited degree to which components are compiled for FSIs number 2.2—Ratio of total asset position in derivatives to total own funds, 2.3—Ratio of total liability position in derivatives to total own funds, 2.13—Ratio of corporate debt service to income, 2.14—Corporate net foreign currency exposure, and 2.15—Ratio of household debt to GDP.

    Monetary statistics published in the IMF’s International Financial Statistics are the most comprehensive source for internationally comparable aggregate data on countries’ financial systems. Monetary statistics are compiled on a high-frequency monthly basis within an existing institutional framework, and internationally agreed compilation standards exist, as embodied in the IMF’s Monetary and Financial Statistics Manual. Similarly, euro area monetary statistics are used as a key element of the European Central Hank’s program on macroprudential indicators.

    A case refers to a single observation of an FSI by a respondent.

    The availability of FSI data on both consolidation bases could have some important advantages. For example, one respondent noted, “The survey does not address the main statistical aspect, which is reconciliation between the home and host country approach, which will be viable if both supervisory and macroeconomic statistical data sources are used.”

    Use of historical valuations is in accordance with international statistical standards.

    Of those who reported doing some sort of research. 61 percent were supervisors, 25 percent were policy or research analysts, and 14 percent were market or other participants. These percentages are similar to the relative weight of each group in the response sample.

    Financial accelerator models are based on information asymmetries between borrowers and lenders. They postulate that when economic conditions are depressed and corporate net worth is low, access to credit is reduced even for worthwhile borrowers. When conditions improve and corporate net worth increases, renewed access to credit by borrowers adds to the economic stimulus. In both cases, the effects are procyclical. See also Chapter IV.

    Defined as insurance corporations and pension funds, other financial intermediaries, and financial auxiliaries in line with the IMF’s Monetary and Financial Statistics Manual.

    The types of data mentioned included trading volumes, bid ask spreads, and credit spreads.

    The possibility of developing a composite indicator of financial system soundness was discussed at the 1999 Consultative Meeting on macroprudential indicators. There was a general sense that the complex reality of financial markets may 1101 lend itself to being captured in such indicators. In particular, composite indicators could prove simplistic and potentially misleading, as they may conceal or misrepresent problems by offsetting positive and negative signals from different individual components.

    A summary of the Board discussion can be found al http://www.IMF.org/external/np/mae/FSI/200l/eng/062501.htm.

    An explanation of terms used to define the indicators can be found in Appendix I.

    Durations of assets and liabilities are examples of indicators that are highly relevant analytically—which is why they are included in the core set—although their compilation is not wide spread. Appendix I offers alternative indicators in cases where durations are not easily available, at least in the short term.

    Two FSIs with usefulness ratings above 3.5 were not included on parsimony grounds as they capture aspects of bank vulnerability already covered by other FSIs. Some FSI definitions vary slightly from the ones used in the FSI Survey and they should be considered preliminary pending blither work on the definition of FSIs.

    However, many countries would have to adjust existing data compilation programs to compile the core FSIs.

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