Abstract

© 2006 International Monetary Fund

Copyright

© 2006 International Monetary Fund

Cataloging-in-Publication Data

Financial soundness indicators : compilation guide—Washington, D.C. : International Monetary Fund, 2006.

p. cm.

Includes bibliographical references.

ISBN 1-58906-385-6

1. Financial institutions—Auditing. 2. International Monetary Fund.

I. International Monetary Fund.

HF5686.F46F35 2006

Price: $32.00

Please send orders to:

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Internet: http://www.imf.org

Contents

  • Abbreviations

  • 1 Introduction

    • Background

    • Some Key Aspects of the Guide

    • Structure of the Guide

    • Terminology

  • PART I: CONCEPTUAL FRAMEWORK

  • 2 Overview of the Financial System

    • Introduction

    • What Is a Financial System?

    • Financial Corporations

    • Nonfinancial Corporations

    • Households

    • Nonprofit Institutions Serving Households (NPISHs)

    • General Government

    • Public Sector

    • Financial Markets

    • Payment System

    • Real Estate Markets

  • 3 Accounting Principles for Financial Soundness Indicators

    • Introduction

    • Definition of Flows and Positions

    • Time of Recognition of Flows and Positions

    • Valuation

    • Residence

    • Domestic and Foreign Currencies, Unit of Account, and Exchange Rate Conversion

    • Maturity

  • 4 Accounting Framework and Sectoral Financial Statements

    • Introduction

    • Accounting Framework

    • Sectoral Financial Statements

  • 5 Aggregation and Consolidation of Data

    • Introduction

    • Defining Terms

    • The Aggregate Resident-Based Approach

    • The Consolidated-Based Approach

    • Applying Consolidated Group Reporting to the Needs of FSI Data

    • Specific Issues Arising from the Consolidated Approach

    • Compiling Consolidated Sector-Level Data

    • Annex. Detailed Specification of the Sector-Level Adjustments Required

  • PART II: SPECIFICATION OF FINANCIAL SOUNDNESS INDICATORS

  • 6 Specification of Financial Soundness Indicators for Deposit Takers

    • Introduction

    • Financial Soundness Indicators

  • 7 Specification of Financial Soundness Indicators for Other Sectors

    • Introduction

    • Calculation of Financial Soundness Indicators

  • 8 Financial Markets

    • Introduction

    • Interest Rates

    • Securities Markets

    • Annex. Structural Indicators for Financial Markets

  • 9 Real Estate Price Indices

    • Introduction

    • Measuring Real Estate Prices

    • Structural Indicators of Real Estate Markets

    • Constructing Real Estate Price Measures

  • PART III: COMPILATION AND DISSEMINATION OF FINANCIAL SOUNDNESS INDICATORS

  • 10 Strategic and Managerial Issues

    • Introduction

    • Strategic Issues

    • Managerial Issues

  • 11 Compilation of FSI Data: Practical Issues

    • Introduction

    • Basic Data Sources

    • Other Data Requirements

    • Availability of Data

    • Breaks in Data Series

    • Seasonal Adjustment

  • 12 Dissemination of FSI Ratios and Related Data

    • Introduction

    • Dissemination Practices

    • A Framework for Disseminating FSIs

  • PART IV: ANALYSIS OF FINANCIAL SOUNDNESS INDICATORS

  • 13 Financial Soundness Indicators and Macroprudential Analysis

    • Introduction

    • Why Are FSI Data Needed?

    • What Is the Financial Stability Framework Within Which FSI Data Can Be Used?

    • What Are Some Other Tools That Can Enhance the Usefulness and Understanding of FSI Data?

  • 14 What Use Can Be Made of the Specific FSIs?

    • Introduction

    • Deposit Takers

    • Other Financial Corporations

    • Nonfinancial Corporations

    • Households

    • Real Estate Markets

  • 15 Peer Group Analysis and Descriptive Statistics

    • Introduction

    • Peer Group Analysis

    • Descriptive Statistics

  • Appendixes

    • I. Survey on the Use, Compilation, and Dissemination of Macroprudential Indicators

    • II. Summary of Guidance for Each Financial Soundness Indicator

    • III. Additional Definitions of FSIs and Related Data Series

    • IV. Reconciliation Between the Guide’s Methodology and National and Commercial Accounting

    • V. Numerical Examples

    • VI. Remaining Issues: Provisioning, Interest Rate Risk, and Stress Testing

    • VII. Glossary of Terms

  • Bibliography

  • Index

  • Boxes

    • 4.1. Measurement Frameworks

    • 4.2. The Basel Capital Adequacy Ratio

    • 4.3. Islamic Financial Institutions and Financial Soundness

    • 4.4. The Approach to Valuation and Provisioning in the Guide

    • 5.1. Interbank Flows and Positions

    • 5.2. Flows and Positions in the Non-Deposit-Taking Sectors

    • 5.3. What Is the Difference Between Data on a Cross-Border and a Domestic Basis?

    • 8.1. Converting Bid-Ask Spreads from Yield Quotes into Price Terms

    • 10.1. Managing Data Compilation Systems

    • 11.1. Relationship Between Monetary and Financial Statistics and FSIs

    • 12.1. Illustrative Points for Items to Be Covered in the Metadata

    • 13.1. Using Interbank Stress Testing to Assess Systemic Risk

    • A2.1. FSIs: Index of Summaries

    • A3.1. The International Standard Industrial Classification of All Economic Activities (ISIC)

    • A6.1. U.S. Loan Classification System (Commercial Bank Examination Manual)

    • A6.2. Loan Classification System of Japanese Financial Supervisory Agency

  • Tables

    • 1.1. Financial Soundness Indicators: The Core and Encouraged Sets

    • 4.1. Deposit Takers

    • 4.2. Other Financial Corporations

    • 4.3. Nonfinancial Corporations

    • 4.4. Households

    • 5.1. Schematic Presentation of Levels of Consolidation

    • 5.2. Sector-Wide Data: Consolidating Income and Expense as Well as Balance Sheet Items

    • 6.1. Deposit Takers: Financial Soundness Indicators

    • 6.2. Net Open Position in Foreign Currencies

    • 6.3. Example of Measuring the Net Open Position in Foreign Exchange

    • 6.4. Future Cash Flows Arising from Financial Derivative Contracts by Maturity

    • 8.1. Stage of Development in Domestic Financial Markets for a Hypothetical Country

    • 8.2. Example of Data Request During an FSAP

    • 9.1. Quantities and Prices of Real Estate

    • 11.1. Domestic Deposit Takers: Series Not Covered in National Accounts Methodology

    • 11.2. Domestic Deposit Takers: Intrasector Positions and Flows

    • 11.3. Domestic Deposit Takers: Other Intragroup Positions and Flows

    • 11.4. Domestically Controlled Deposit Takers: Intergroup Positions and Flows (Cross-Border Consolidated Data)

    • 11.5. Other Financial Corporations: Additional Data Series

    • 11.6. Nonfinancial Corporations: Series Not Covered in National Accounts Methodology

    • 11.7. Nonfinancial Corporations: Additional Data Series

    • 11.8. Example for Computing Changes in Capital Adequacy Ratio Given the Changes in Population of Reporting Banks

    • 11.9. Deposit Takers’ Income and Expense Statement and Balance Sheet

    • 11.10. Nonfinancial Corporations’ Income and Expense Statement and Balance Sheet

    • 11.11. Households’ Income

    • 12.1. Illustrative Presentation of Financial Soundness Indicators

    • 12.2. Illustrative Presentation of Structural Indicators for the Domestic Financial Sector

    • 13.1. Basel Core Principles Containing Information Relevant to the Interpretation of FSIs

    • 15.1. Example of Computing the Herfindahl Index

    • 15.2. Example of Computing the Gini Index

    • 15.3. Dispersion Statistics of Capital Asset Ratios (Equal-Weight Approach)

    • 15.4. Dispersion Statistics of Capital Asset Ratios (Weighted-by-Contribution Approach)

    • 15.5. Extensions of Dispersion Statistics of Capital Asset Ratios (Equal-Weight Approach)

    • 15.6. Statistics of Capital Asset Ratios, by Range

    • 15.7. Statistics of Capital Asset Ratios, by Percentile

    • 15.8. Transition Matrix for One-Year Transitions Among Percentiles of the Distribution of Return on Capital

    • 15.9. Analysis of Tails of the Distribution by Industry Classification

    • A1.1. FSIs by Type of Economy

    • A1.2. Group II FSIs by Type of Economy

    • A3.1. Calculating the Hui-Heubel Ratio

    • A3.2. Deposit Takers: Memorandum Series

    • A3.3. Other Financial Corporations: Memorandum Series

    • A3.4. Nonfinancial Corporations: Memorandum Series

    • A5.1. Income and Expense Statements: Deposit Takers—Aggregated Data

    • A5.2. Balance Sheets and Related Material: Deposit Takers—Aggregated Data

    • A5.3. Financial Soundness Indicators: Deposit Takers—Aggregated Data

    • A5.4. Recording Gains and Losses on Traded Instruments: Case 1

    • A5.5. Recording Gains and Losses on Traded Instruments: Case 2

    • A5.6. Recording Gains and Losses on Traded Instruments: Case 3

    • A5.7. Recording Gains and Losses on Traded Instruments: Case 4

    • A5.8. Recording Gains and Losses on Traded Instruments: Case 5

    • A5.9. Treatment of Interest on Nonperforming Loans: Case 1

    • A5.10. Treatment of Interest on Nonperforming Loans: Case 2

    • A5.11. Treatment of Interest on Nonperforming Loans: Case 3

    • A5.12. Interbank Positions and Flows

    • A5.13. Other Intragroup Positions and Flows

    • A5.14. Income and Expense Statements: Deposit Takers—Sector-Level Consolidated Data (Domestic Consolidated Data)

    • A5.15. Balance Sheets: Deposit Takers—Sector-Level Consolidated Data (Domestic Consolidated Data)

    • A5.16. Intergroup Positions and Flows (Cross-Border Consolidated Data)

    • A5.17. Income and Expense Statements: Deposit Takers—Sector-Level Consolidated Data (Cross-Border Consolidated Data)

    • A5.18. Balance Sheets: Deposit Takers—Sector-Level Consolidated Data (Cross-Border Consolidated Data)

    • A5.19. Consolidation of Sector-Wide Capital: Base Case

    • A5.20. Consolidation of Sector-Wide Income and Capital: Unrealized Valuation Gains—Case 1

    • A5.21. Consolidation of Sector-Wide Income and Capital: Unrealized Valuation Gains—Case 2

    • A5.22. Consolidation of Sector-Wide Income and Capital: Realized Valuation Gains—Case 1

    • A5.23. Consolidation of Sector-Wide Income and Capital: Realized Valuation Gains—Case 2

    • A5.24. Goodwill and Sector-Wide Capital: Purchase with Cash

    • A5.25. Goodwill and Sector-Wide Capital: Purchase by Issuing Shares

    • A5.26. Income and Expense Statements: Nonfinancial Corporations—Sector-Level Consolidated Data

    • A5.27. Balance Sheets: Nonfinancial Corporations—Sector-Level Consolidated Data

    • A5.28. Financial Soundness Indicators: Nonfinancial Corporations—Sector-Level Consolidated Data

    • A6.1. Levels of Provisions for Different Loan Classifications

    • A6.2. Interest Rate Risk

    • A6.3. Example of Gap Analysis

    • A6.4. Interest-Rate-Sensitive Assets and Liabilities with a Time to Repricing of One Year or Less

    • A6.5. Duration (D) of a Six-Year Eurobond with 8 Percent Coupon and Yield

    • A6.6. Portfolio Duration

    • A6.7. Sector-Level Duration

    • A6.8. Duration (D*) When the Yield Curve Is Upward Sloping

  • Figures

    • 8.1. Market Depth and Tightness

    • 13.1. Analytic Framework for Financial Stability

    • 15.1. Distribution of Observations

    • 15.2. Distribution of Ratios by Weight

    • 15.3. Distribution of Capital Asset Ratios by Number of Institutions and by Weight

    • 15.4. Percentiles of Distribution of Return on Equity

    • 15.5. Coincidence of Financial Soundness Indicators

    • A1.1. Average Number of FSIs Compiled and Disseminated, by Type of Economy

Abbreviations

AAOIFI

Accounting and Auditing Organization for Islamic Financial Institutions

BCBS

Basel Committee on Banking Supervision

BCLP

Bank Loan Classification and Provisioning Practices in Selected Developed and Emerging Countries (Laurin and Majnoni, 2003)

BCPs

Basel Core Principles

BIS

Bank for International Settlements

BPM5

Balance of Payments Manual, fifth edition (IMF, 1993)

CAMELS

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

CFC

Consumption of fixed capital

CPLG

Basel Core Principles Liaison Group

DQAF

Data Quality Assessment Framework (IMF)

EBIT

Earnings before interest and tax

ECB

European Central Bank

ERGD

Expected recovery given default (BCBS)

EWS

Early warning system

FC

Funds contributed by owners

FSAP

Financial Sector Assessment Program

FSF

Financial Stability Forum

FSI

Financial Soundness Indicator

FSIM

Financial services indirectly measured

G-10

Group of Ten

GDDS

General Data Dissemination System

GDP

Gross domestic product

GFSM

Government Finance Statistics Manual (IMF, 2001a)

GNF

Global note facility

HHR

Hui-Heubel Ratio

IAS

International accounting standard

IASB

International Accounting Standards Board

IBS

International banking statistics (BIS)

IFI

Islamic financial institution

IFRS

International Financial Reporting Standard (IASB)

IFSB

Islamic Financial Services Board

IIF

Institute for International Finance

IMF

International Monetary Fund

IRB

Internal Ratings Based (BCBS)

ISIC

International Standard Industrial Classification of all Economic Activities

LGD

Losses given default

LoCs

Letters of credit

MFSM

Monetary and Financial Statistics Manual (IMF, 2000a)

NIF

Note issuance facility

NPISHs

Nonprofit institutions serving households

NPLs

Nonperforming loans

ODC

Other depository corporation

OFC

Other financial corporation

OTC

Over-the-counter

PD

Probabilities of default

PLS

Profit and loss sharing

RAROC

Risk-adjusted return on capital

Repo

Repurchase agreement

ROA

Return on assets

ROE

Return on equity

RTGS

Real Time Gross Settlement

RUF

Revolving underwriting facility

SDDS

Special Data Dissemination Standard (IMF)

SDRs

Special drawing rights

SIC

Standard Industrial Classification

SIR

Spread between the highest and lowest interbank rate

SLDR

Spread between reference lending and deposit rates

1993 SNA

System of National Accounts 1993 (Commission of the European Communities and others, 1993)

SPE

Special purpose entity

SPV

Special purpose vehicle

WAMU

West African Monetary Union

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