Appendix I Measurement of International Banking Flows
- Donald Mathieson, Eliot Kalter, Maxwell Watson, and G. Kincaid
- Published Date:
- February 1986
The quantity and quality of statistics on international banking have improved substantially in recent years. In particular, the Fund introduced new tables on international banking statistics (IBS) in the January 1984 issue of International Financial Statistics (IFS), and expanded the coverage further in early 1985. The IBS series is a source of comprehensive data on a country’s gross liabilities to, and claims on, nonresident banks as well as on its banks’ liabilities to, and claims on, nonresident nonbanks.
This series is also used in deriving measures of banking flows on which the discussion of international banking activity in this paper is largely based. However, flow data derived from stock data need to be interpreted cautiously. Changes in banks’ external positions do not necessarily measure transactions, and the quality of the stock data depends heavily on the accuracy, completeness, and currentness of information supplied by national authorities. Hence, this appendix briefly reviews the coverage of the IBS series and other sources of international banking statistics used in this paper and discusses statistical issues affecting the measurement of international banking flows.
The IBS data are drawn in part from data on banks’ external positions included in the regular money and banking returns of Fund members for publication in IFS and in part from confidential reports which give a geographic analysis of the external accounts of deposit banks in a number of international banking centers. Information provided in the money and banking returns of Fund members is used to derive the series on interbank liabilities and claims.33 interbank credits to nonbanks by residence of lending bank, and bank deposits of nonbanks by residence of borrowing bank.
Detailed reports on the geographic distribution of the external assets and liabilities of deposit banks in 32 international banking centers are made available to the Fund. These reports, although individually highly confidential, are aggregated across reporting centers to produce the tables on bank credit to nonbanks by residence of borrower; and bank deposits of nonbanks by residence of lender. The world totals, however, are equal to the “all country” totals in the tables on bank credit to nonbanks by residence of lending bank; and on bank deposits of nonbanks by residence of borrowing bank, respectively.34 International banking centers whose detailed geographic reports are currently used include nearly all industrial countries, as well as the major offshore banking centers, and some developing countries that play a major role in international banking.
The IBS series also provides an extensive data base for a comprehensive analysis of international bank lending and deposit taking flows by country of residence. As these data are on a residency basis from the point of view of both the reporting and reported country, they are conceptually close to the balance of payments data on both monetary and nonmonetary capital movements. Data on bank lending and deposit taking flows are derived from stock data detailed above. Separate estimates are generated for lending flows to banks, deposit taking from banks, lending flows to nonbanks, and deposit taking from nonbanks. Lending flows to banks are measured by changes in stock figures on the interbank accounts by residence of borrowing bank, and those to nonbanks by changes in the stock figures on international bank credits to nonbanks by residence of borrower. Deposit taking flows from banks are measured by the changes in stock figures on the interbank accounts by residence of lending bank and those from nonbanks by the changes in stock figures on international bank deposits by nonbanks by residence of deposit. The changes in stock figures for individual countries are adjusted for changes attributable to exchange rate movements.
The other major source of international banking statistics is the BIS, which has long published quarterly data on the geographic distribution of the external accounts of banks in BIS reporting countries. The BIS recently enlarged its reporting area to take in the geographic distribution of the external accounts of banks in 25 countries, including nearly all the industrial countries and offshore banking centers. In addition to stock and flow figures, the BIS derives a measure of “net international bank credit” by excluding estimates of redepositing among reporting banks. One explanation for differences between the Fund and BIS series is that, for data on the interbank market, the Fund uses information on the external positions of the banking systems of over 140 Fund members, whereas the BIS uses data derived from the geographic analysis mentioned above. Secondly, the Fund has more international banking centers in its reporting system than the BIS. Thirdly, the Fund makes estimates of the positions, with reported countries’ nonbanks, of banks in centers not providing a bank\nonbank breakdown as a classification of the geographic distribution.
In addition, the BIS publishes semiannual data entitled “The Maturity Distribution of International Bank Credits.” These series have been compiled on a consolidated basis since the end of 1984.35 Hence, for banks with head offices in the reporting area, coverage extends to the activities of their affiliates located outside the reporting area, and the data include not only the cross-border claims for such affiliates, but also their local lending in non-local currency. The main value of this report is to provide information on the maturity distribution of the reporting banks’ external positions and on undisbursed commitments to individual countries. Also, these data permit comparison of banks’ consolidated claims published by some countries with total claims by the reporting group, although changes in the coverage of the data make comparison over time difficult.
Recently, the BIS published data on banks’ nationality of ownership. The new reports encompass the international activities of bank offices in 14 countries plus the cross-border operations of the branches of U.S. banks in some offshore banking centers. These data allow an analysis of changes in the positions of banks in each of these countries with their own related offices abroad, with other banks, and with nonbanks, but do not provide a geographic analysis. The data are not adjusted for exchange rate changes.
This section discusses measurement issues arising first from the derivation of international banking flows from the IBS series, and second from the accuracy of the reports the Fund receives.
Exchange Rate Adjustment
Figures on international bank lending to, and deposit taking from, banks and nonbanks in individual countries are calculated by taking changes in the IBS series adjusted for variations in exchange rates. The adjustment of the stock figures is necessary because, in an environment of floating exchange rates, some of the changes in the external positions of banks result from the variations in exchange rates used to convert external positions denominated in several currencies into U.S. dollars. The adjustment process is based on the overall currency composition of the external positions of banks in 18 major international banking centers in relation to banks and nonbanks in individual countries.36 This currency distribution is assumed to represent the currency distribution of the external positions of banks and nonbanks in the reported countries with all nonresident banks. The flow data are calculated as follows: external positions, reported to the Fund in U.S. dollars, are converted back into their original currencies using the currency distribution and exchange rates prevailing on the dates to which the reports refer. The changes in these positions are then calculated and converted back into U.S. dollars using period average exchange rates. Finally, the flow figures are obtained by aggregating changes (expressed in U.S. dollar terms) across currencies of denomination.37
Flow figures derived from stock data must be interpreted carefully. The assumptions made in estimating flows from stocks (particularly with regard to the currency composition of stocks) are necessarily approximations. In addition, banks’ external positions can vary because of reclassification of some items, rather than because of transactions between debtor and creditor. For instance, creditor banks may reduce their reported external claims when they make provisions or write-offs on international loans. The same can be said when banks sell their claims to nonbank investors or transfer some of their claims to guaranteeing agencies for value. Also, renegotiation and rescheduling of external debt can give rise to variations in banks’ external positions which, when combined with other transactions, are difficult to interpret.
Accuracy of Reports
A second set of measurement issues is related to the accuracy of the reports the Fund uses in compiling the IBS series. This is especially important because the IBS series is compiled using two main sources of data and inaccurate reports can result in overestimation or underestimation when two series are combined. The comprehensiveness of the reports has also become an increasingly important issue because the greatly expanded range of financing techniques available today is unevenly captured in the existing statistical collection system.
To analyze international bank lending to individual countries, the IBS series on interbank accounts by residence of borrower is combined with the series on international bank credit to nonbanks by residence of borrower. The first series is derived from the interbank positions in the monetary statistics that countries report to the Fund. The second series is calculated from the reports of major banking centers on the positions of their banks with banks and nonbanks in individual countries. Obviously, any misclassification between banks and nonbanks either in the monetary statistics or in the reports of major banking centers can result in either overestimation or underestimation.
Misclassification may occur either because the data are improperly reported or because the Fund staff makes its own estimates when a bank/nonbank breakdown is not available in either the monetary statistics or the reports of some international banking centers. In the past few years, some misclassifications have resulted following negotiated debt reorganization that have involved the assumption by the country’s banking system (generally the central bank) of the external debt of nonbanks. In that case, the monetary statistics will generally report an increase in the external liabilities of the banking system to international banks; but this increase will not always be matched by a reduction in the claims on nonbanks reported by international banking centers.
Overestimation of bank lending may also occur because of the practice of recording payments arrears as part of the external liabilities of the monetary authorities. If these arrears are related to the external debt of nonbanks, it is likely that they will be accounted for twice in the IBS series since international banks will also report them in their claims on nonbanks, to the extent that they consider the nonbanks to remain the legal debtors. To help remove double counting, interbank positions reported by major international banking centers with individual countries are compared with interbank positions reported in the monetary statistics of these individual countries.
The comprehensiveness of international banking statistics is also affected by the increasing use of securities to meet international financial needs, as discussed earlier in this paper. The proliferation of these financing techniques has caused statistical problems. First, the recording of banks’ investment portfolios and banks’ issuances of securities differs among banking centers. In general, holdings and issuances of external securities by banks are properly recorded in the monetary statistics (with a few major exceptions) and, hence, in the four IBS tables derived from these data. However, securities are not systematically reported in the geographic analysis of the external positions of banks in 32 international banking centers, To the extent that such instruments represent positions with nonbanks, and that they are reported in the monetary statistics, they will be reported as unallocated items in the two IBS tables derived from the reports of major banking centers. Second, the underwriting of instruments recorded off the banks’ balance sheets, such as note issuance facilities, is not reported in the external positions of banks and, hence, the IBS series does not record the amount of international financing supported by banks’ medium-term commitments.
Data used in this paper incorporate adjustments made to the IBS series to correct for some of the above-mentioned measurement issues. Revisions to estimated lending flows to 12 developing countries resulted in a downward adjustment of total cross-border lending to these countries of approximately $10 billion in 1983 and $1.5 billion in 1984.
Interbank accounts of nonmembers of the Fund are derived from the geographic analysis of banks’ external accounts supplied by reporting international banking centers.
Conceptually, at the world level, totals should be the same in each pair of tables since they represent opposite ends of the same transactions. However, banks in only 32 international banking centers report their positions with nonbanks in individual countries, compared with more than a hundred countries reporting their positions with nonbanks as a whole in their monetary statistics. Differences between the world totals and the sum of the country (and area) components, in the tables derived mainly from the detailed geographic analysis, are shown under allocated items, which are expected to be reduced over time as the reports of an increasing number of international banking centers are made available to the Fund and the quality of these reports improves. The area residuals reflect both the extent to which reporting banks identify positions by area but not by individual country, and reporting banks’ positions with countries not specifically listed.
Bank claims captured in these reports are smaller than those in the BIS quarterly reports because a smaller number of countries provides information for the semiannual reports. The reports do not provide information on liabilities or positions with banks and nonbanks.
The Fund receives these figures from the BIS.
The BIS uses the end-of-period exchange rates to adjust the stock data, in effect assuming that changes in deposit banks’ positions occur at the end of each period. In contrast, the Fund’s Balance of Payments Manual assumes that such changes are evenly distributed over the period.