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Adrienne Cheasty

For the latest thinking about the international financial system, monetary policy, economic development, poverty reduction, and other critical issues, subscribe to Finance & Development (F&D). This lively quarterly magazine brings you in-depth analyses of these and other subjects by the IMF’s own staff as well as by prominent international experts. Articles are written for lay readers who want to enrich their understanding of the workings of the global economy and the policies and activities of the IMF.

Mr. Jose M Cartas and Mrs. Qi He


The production of the Handbook on Securities Statistics (the Handbook) is a joint undertaking by the Bank for International Settlements (BIS), the European Central Bank (ECB) and the International Monetary Fund (IMF). They have specific interests and expertise in the area of securities statistics and are the core members of the Working Group on Securities Databases (WGSD). In 2007, the WGSD—originally established by the IMF in 1999—was reconvened in response to various international initiatives and recommendations to improve information on securities markets. The WGSD is chaired by the ECB and includes the BIS, the IMF and the World Bank. Selected experts from national central banks, who participated actively in the various international groups that identified the need to improve data on securities markets, were also invited to contribute to some of the WGSD’s deliberations. In mid-2008, the WGSD agreed to sponsor the development of a handbook on securities statistics. In November 2009, the report entitled “The Financial Crisis and Information Gaps”, which was prepared by the Financial Stability Board (FSB) Secretariat and IMF staff at the request of the Group of Twenty (G-20) finance ministers and central bank governors, endorsed the development of the Handbook, as well as the gradual implementation of improved statistics on issuance and holdings of securities at the national and international level. The BIS’s compilation of data on debt securities plays an important role in this respect. The Handbook sponsors responded to the demand from various international groups for the development of methodological standards for securities statistics and released the Handbook in three parts. Part 1 on debt securities issues was published in May 2009, and Part 2 on debt securities holdings in September 2010. Part 3 of the Handbook on equity securities statistics was published in November 2012. The methodology described in all three parts was based on the System of National Accounts 2008 (2008 SNA) and the sixth edition of the Balance of Payments and International Investment Position Manual (BPM6). The three parts also went slightly beyond the confines of these standards by providing guidance and additional information on, for example, the main features of securities, special and borderline cases, and breakdowns of issues and holdings of securities by counterparty. Special attention was also paid to specific operations such as mergers and acquisitions, restructuring, privatization and nationalization, and transactions between general government and public corporations. From the beginning, the intention was to combine the three parts into one volume, thereby eliminating any overlap and repetitions between the parts. The Handbook’s conceptual framework is complemented by a set of tables for presenting securities data both at an aggregated level and broken down by various features. This should allow sufficient flexibility in the presentation of data on issuance and holdings of securities, in line with developments in securities markets and financing. The Handbook is the first publication of its kind to focus exclusively on securities statistics. Recent turmoil in global financial markets has confirmed the importance of timely, relevant, coherent, and internationally comparable data on securities, from the perspective of monetary policy, fiscal policy, and financial stability analysis. This Handbook provides a conceptual framework for the compilation and presentation of statistics on different types.

International Monetary Fund. Monetary and Capital Markets Department
This Financial Sector Assessment Program report on People’s Republic of China–Hong Kong Special Administrative Region highlights that it has developed a sound framework for the regulation of securities markets, which exhibits a high level of implementation of the International Organization of Securities Commissions Principles. Both the Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) are sophisticated regulators and have been able to leverage from domestic and international expertise to develop sound supervisory practices. Further, while traumatic, the Lehman minibond experience has led to material improvements in conduct supervision that have permeated both the SFC and the HKMA. Continuing efforts by the SFC to build up its capacity to identify and monitor emerging risks should increase the SFC’s ability to react in a timely manner to an evolving landscape, marked by an increased interconnection with the Mainland China, an active presence by international players and increased regional competition as an international finance center. It is important to consider translating the operational independence that the regulators have enjoyed into de-jure independence, through modifications in the current legal governance arrangements for both SFC and HKMA.
International Monetary Fund
This review of financial sector regulation and supervision in the Kingdom of the Netherlands—Netherlands Antilles explains banking, insurance, and pension fund supervision. The Netherlands Antilles is resolved to remove the perception created by placement of the jurisdiction in the weakest category of the list of offshore financial centers, published by the Financial Stability Forum (FSF). Bank of the Netherlands Antilles (BNA) staff is highly capable, well-trained, and dedicated, and is able to attract appropriate personnel and material resources to perform its functions.
Mr. Andrew Feltenstein and Roger Dean Lagunoff
This paper examines alternative ways to prevent losses from bank insolvencies. It is widely viewed that transparency in reporting bank balance sheets is a key element in reducing such losses. It is, however, unclear just how such transparency would be achieved. Current approaches to avoiding insolvencies generally involve international enforcement mechanisms. Among these are the sovereign debt restructuring mechanism (SDRM), and, more generally, an international bankruptcy court. We develop a model that compares two alternative institutions for bank auditing. Neither of these institutions would require as much enforcement capability as an international bankruptcy court, hence they would be easier to introduce. The first of these is a system of central bank auditing of national banks. The second type of auditing is carried out by an international agency that collects risk information on banks in all countries and then provides it to depositors. Using a game-theoretic approach, we compare the informativeness of the disclosure rule in the symmetric Perfect Bayesian equilibrium in each of the two different auditing institutions. We show that the international auditor generally performs at least as well, and sometimes better than, auditing by either central banks, which, in turn, perform better than voluntary disclosure by the banks themselves. The results do not assume any informational advantages of the international auditor, nor is the international auditor somehow less "corrupt" than the central banks. Rather, the international auditor's credibility comes from the simple fact that its incentives are not distorted by a sovereignty bias that plagues the central banks.
Ahmed Zoromé
This paper proposes a new definition of Offshore Financial Centers (OFCs) and develops a statistical method to differentiate between OFCs and non-OFCs using data from the Coordinated Portfolio Investment Survey (CPIS), the International Investment Position (IIP), and the balance of payments. The suggested methodology identifies more than 80 percent of the OFCs in the study sample that also appear in the a priori list used by the IMF to conduct its OFC assessment program. The methodology distinguishes OFCs based strictly on their macroeconomic features and avoids subjective presumptions on their activities or regulatory frameworks. The study also identifies three new countries meeting OFC criteria.
Jannick Damgaard, Thomas Elkjaer, and Niels Johannesen
Macro statistics on foreign direct investment (FDI) are blurred by offshore centers with enormous inward and outward investment positions. This paper uses several new data sources, both macro and micro, to estimate the global FDI network while disentangling real investment and phantom investment and allocating real investment to ultimate investor economies. We find that phantom investment into corporate shells with no substance and no real links to the local economy may account for almost 40 percent of global FDI. Ignoring phantom investment and allocating real investment to ultimate investors increases the explanatory power of standard gravity variables by around 25 percent.