Portfolio Security Debt of Reporting Banks

All of these comparisons are potentially affected by the question of debt securities issued by banks, since these securities are nominally in the totals of bank liabilities as found in the IBS. The BIS reporting group of banks had outstanding liabilities of about $260 billion in international bonds and notes at the end of 1989, and banks reporting to the BIS are instructed to include in the banking statistics their security debt in cross-border liabilities. In balance of payments accounts, however, long-term securities are in the category of portfolio investment rather than “other capital.” Bank debt securities are a structural inconsistency between banking and balance of payments data that tends to make the banking figures larger than “other claims” of nonbanks when comparisons are made.

In practice, however, securities issued by banks do not cause much problem in comparisons with national balance of payments figures. Like other cross-border issuers, banks have little knowledge of who holds their securities or whether holders are banks or nonbanks. Most countries reporting in BIS/IBS systems, therefore, relegate the portfolio debt of their banks to the “geographically unallocated” category, while other reporters exclude bank debt security from their reports entirely.⁹³ Consequently, very little of the security debt of reporting banks has been allocated to any holder countries in IBS nonbank asset flows. As a result, BIS and IBS data have almost the same coverage, in practice, as the balance of payments category of “other capital” flows that excludes banks’ portfolio liabilities. In general, bank-issued securities are not an important problem in IBS comparisons with national figures on nonbank “other asset” flows.

Countries Using International Banking Statistics

Five countries now use international banking statistics as a data source for nonbank asset flows in their balance of payments compilations. Table 32 presents comparisons for these five countries between banking versions of the data and corresponding balance of payments items. The table shows balance of payments items at the most specific level of detail at which non-bank claims are published by each country. In each case the item is more specific than the more aggregated asset entries in the Yearbook.

Of the five countries, Ireland and the United Kingdom use derived nonbank figures directly from IBS, although Ireland makes its own adjustments for valuation changes. The other three countries include some part of the international banking data: Canada uses BIS data with adjustments; Germany has used important elements of BIS data in the recent past; and Mexico uses net increments in IBS stocks as stated in dollars. Table 32 shows that, for the four countries other than the United Kingdom, the comparisons are close for the 1986–89 period. The largest differences—which arise mainly from the definition of banks—are for Germany.⁹⁴

Capital flows as published for the United Kingdom are radically different from IBS, even though U.K. compilers use IBS flows directly and exactly. The difference arises only because the compilers add to IBS nonbank amounts their own estimates of flows for a group of U.K. financial enterprises located mainly in the Channel Islands and the Isle of Man. These institutions are not part of the United Kingdom’s banking sector, but U.K. compilers assume that foreign countries classify them as U.K. banks in their BIS and IBS reports. On the basis of that assumption, U.K. compilers add their own estimates for such businesses to IBS nonbank flows for their own balance of payments statement.

Major Countries Not Using International Banking Statistics

Table 33 gives nonbank asset comparisons for 16 countries that, according to the IBS data, hold large claims on foreign banks. These countries compile non-bank asset flows without using international banking statistics but, for each of them, the balance of payments item in the table is conceptually a fairly close measure of claims on foreign banks.

In total, the IBS measure of nonbank asset flows for these countries averages $40.9 billion more a year over the 1986–89 period than the comparable total of balance of payments flows did. Almost half of the excess originates in the U.S. figures, for which IBS-derived amounts are outstandingly different from balance of payments counterparts. The $21 billion excess for the other 15 countries is widely distributed among them. Only Norway and Venezuela have nonbank outflows in the national data that are larger than IBS versions.⁹⁵

For three of the countries in Table 33—Austria, Italy, and Spain—the balance of payments statement explicitly excludes entries for private nonbank claims on foreign banks. Nonbanks in these countries generally were not authorized to hold foreign bank deposits during the years under review, and outflows were correspondingly omitted from the accounts. (Circumstances have changed since 1989 in each of these three countries and, in future, such entries will be made.) The Hong Kong balance of payments also omits nonbank outflows to foreign banks. However, the Hong Kong statement is estimated by the Fund rather than by local compilers, and it is used at the Fund in regional and world totals in Part 2 of the Yearbook. For Hong Kong, therefore, the Fund might look more closely at international banking statistics to improve these figures.

Other Countries

The 21 countries in Tables 32 and 33 held about 70 percent of all nonbank claims on foreign banks in IBS totals in the late 1980s. In the comparisons in those tables, national sources were searched to find the most appropriate balance of payments item to match against IBS-derived figures. For the rest of the world—the other 126 countries in Part 2 of the Yearbook—a somewhat coarser comparison with IBS appears in Table 34. This comparison uses national figures for total asset flows of private nonbanks, together with certain non-reserve parts of official asset flows. This balance of payments asset total is typically much broader than claims on banks alone. It includes a variety of receivables, as well as cross-border lending by insurance companies and finance companies. In the 1990 Yearbook, “other capital” also includes commercial paper and other short-term marketable claims, both of which were active forms of credit flow during the 1980s. The balance of payments total is much broader in asset coverage and, if well measured, can be expected to be much larger than IBS counterparts.

For any country with IBS-derived flows that are persistently larger than balance of payments totals over several years, this comparison gives a strong indication that balance of payments versions of capital outflows are too small.⁹⁶ The excess of IBS over balance of payments for these countries normally is a minimum measure of the understatement in balance of payments estimates, and totals for them should be viewed as only a first, or base, estimate of flows that may be missing from the world figures. More accurate figures can come only from detailed analysis of national source data.

Table 34 presents the results of this broad comparison for all countries not in Tables 32 and 33. The table includes those countries for which IBS-derived flows were larger than balance of payments net asset outflows of nonbanks during 1986–89. Many other countries had IBS asset flows that were smaller than their balance of payments flows, and such countries are not in the table. The totals in the table come to a $25.8 billion annual average of excess IBS flows over balance of payments figures.

This $25.8 billion, in combination with the $40.9 billion excess that is shown in Table 33, results in a tentative annual average of $67 billion that the Working Party has used to adjust world totals of nonbank asset outflows. This amount is tentative, even speculative, but it is also about 70 percent of the total cross-border flows from nonbanks to banks recorded in IBS. It is by far the largest outflow adjustment to recorded capital flows and greatly reduces the global imbalance. Even if an overstatement, it implies that a very large proportion of asset transactions of private nonbanks with foreign banks is not captured in national balance of payments compilations.

As with the major asset holders, there are reservations about these findings, and the relations should be looked at carefully by compilers to test their validity.⁹⁷ For many of the countries in Table 34, balance of payments accounts show no entry at all for foreign assets of domestic nonbanks. For countries showing no entries and for others with very small recorded flows, IBS flows undoubtedly add information for compilers. Three offshore centers—the Cayman Islands, Bermuda, and Gibraltar—are not included in the Yearbook figures at all, and the IBS-derived nonbank asset outflows from these three countries, averaging $4.6 billion, are part of the more complete picture for offshore centers discussed in Chapter 9.⁹⁸

Major Debtor Countries

The base for the comparison of nonbank liabilities is 24 countries that are major debtors according to IBS. However, few of these countries had balance of payments entries that could be reasonably interpreted as borrowing from banks. Table 35 gives the comparisons that are possible between IBS-derived liabilities and balance of payments items that are close in coverage to nonbank borrowing from foreign banks. The table lists just eight countries, considerably fewer than in Table 33 on assets. The comparisons in liabilities are also more ambiguous than those in assets.

Table 35.

Nonbank Liabilities to Foreign Banks: Comparisons of IBS and National Balance of Payments Estimates, Annual Average Flows, 1986–89

Major Countries with Comparable Balance of Payments Item

(In billions of U.S. dollars; net increase (+))

¹National balance of payments accounts item that is closest in coverage to nonbank “other capital” liabilities to foreign banks. For all countries in the table the item is more specific than the Balance of Payments Statistics Yearbook measure of private nonbank total liability flows.

²Not included in totals in Tables 36 and 37 and not used as adjustments to capital account flows.

³Belgium-Luxembourg, Denmark, Germany, and the United States.

⁴Balance of payments entries for the United Kingdom are IBS flows plus national estimates for financial institutions not included in IBS-derived numbers for nonbanks.

Table 35.

Nonbank Liabilities to Foreign Banks: Comparisons of IBS and National Balance of Payments Estimates, Annual Average Flows, 1986–89

Major Countries with Comparable Balance of Payments Item

(In billions of U.S. dollars; net increase (+))

		IBS
		Total	Of which portfolio	BOP1	IBS, excluding portfolio, less BOP
Belgium-Luxembourg		1.4	−0.2	0.3	1.3
Canada2		2.1	—	2.1	—
Denmark		2.1	−0.2	0.1	2.2
Germany		4.1	2.6	−0.8	2.3
Italy2		4.3	1.1	5.4	−2.2
Japan2		22.5	2.9	23.3	−3.7
Total, countries above		36.5	6.2	30.4	−0.1
United States		29.7	3.5	1.2	25.0
All countries including United States		66.2	9.7	31.6	24.9
Total for countries for which flows are larger in IBS than in BOP3		37.3	5.7	0.8	30.8
Memorandum:
	United Kingdom2	5.7	1.3	6.54	−2.1

¹National balance of payments accounts item that is closest in coverage to nonbank “other capital” liabilities to foreign banks. For all countries in the table the item is more specific than the Balance of Payments Statistics Yearbook measure of private nonbank total liability flows.

²Not included in totals in Tables 36 and 37 and not used as adjustments to capital account flows.

³Belgium-Luxembourg, Denmark, Germany, and the United States.

⁴Balance of payments entries for the United Kingdom are IBS flows plus national estimates for financial institutions not included in IBS-derived numbers for nonbanks.

View Table

Table 35.

Nonbank Liabilities to Foreign Banks: Comparisons of IBS and National Balance of Payments Estimates, Annual Average Flows, 1986–89

Major Countries with Comparable Balance of Payments Item

(In billions of U.S. dollars; net increase (+))

		IBS
		Total	Of which portfolio	BOP1	IBS, excluding portfolio, less BOP
Belgium-Luxembourg		1.4	−0.2	0.3	1.3
Canada2		2.1	—	2.1	—
Denmark		2.1	−0.2	0.1	2.2
Germany		4.1	2.6	−0.8	2.3
Italy2		4.3	1.1	5.4	−2.2
Japan2		22.5	2.9	23.3	−3.7
Total, countries above		36.5	6.2	30.4	−0.1
United States		29.7	3.5	1.2	25.0
All countries including United States		66.2	9.7	31.6	24.9
Total for countries for which flows are larger in IBS than in BOP3		37.3	5.7	0.8	30.8
Memorandum:
	United Kingdom2	5.7	1.3	6.54	−2.1

¹National balance of payments accounts item that is closest in coverage to nonbank “other capital” liabilities to foreign banks. For all countries in the table the item is more specific than the Balance of Payments Statistics Yearbook measure of private nonbank total liability flows.

²Not included in totals in Tables 36 and 37 and not used as adjustments to capital account flows.

³Belgium-Luxembourg, Denmark, Germany, and the United States.

⁴Balance of payments entries for the United Kingdom are IBS flows plus national estimates for financial institutions not included in IBS-derived numbers for nonbanks.

Table 35 also differs from Table 33 in that the second column shows the portfolio component of IBS nonbank liabilities—the amount, that is, of each country’s non-bank long-term debt securities acquired by foreign banks. While derived nonbank assets in the IBS include small amounts of bank debt securities that cannot be separated out, IBS geographic detail includes much more of the portfolio component of nonbank liabilities. The BIS has recently developed a survey of the portfolio assets of reporting banks that gives some basis for separating holdings of securities from their other assets. The BIS survey data are the basis for the estimated bank acquisitions of securities in the second column of Table 35. The estimates are tenuous and uncertain, and the comparisons in the far right-hand column are coarse as a result.

As this approach to data comparisons makes clear, isolating the securities component of bank asset positions greatly improves the conceptual fit between banking and balance of payments figures and enables valuable comparisons. The Working Party therefore believes that the BIS work on identifying bank holdings of securities is important to the use of IBS as a check against balance of payments and that it should be pursued actively.

Of the countries in Table 35, only the United Kingdom uses IBS directly in its balance of payments accounts. As with nonbank assets, the published U.K. amounts for nonbank liabilities include borrowing by other institutions, located mainly in the Channel Islands and the Isle of Man, that give a result different from IBS flows alone. As in Table 33, the U.K. figures are not included in the totals.⁹⁹

Except for the U.S. comparisons, Table 35 shows small differences between IBS and balance of payments for the 1986–89 period. For the group other than the United States, the two sources give almost identical totals for nonbank liabilities. This close result contrasts with the asset comparisons and supports the widespread belief that countries can track liabilities considerably better than assets, although the reasons may differ from one country to another. The comparison for Canada is very close. For three countries in the table—Belgium-Luxembourg, Denmark, and Germany—the banking statistics show larger credit flows to nonbanks than do balance of payments data. For Italy and Japan, national figures show almost the same flow as IBS before the portfolio deduction; after portfolio components are removed, IBS are smaller than national figures.

For the United States, the $25 billion excess in average IBS nonbank liability flows is even larger than the differences in asset flows discussed in connection with Table 33. Among major borrowing countries, only the United States shows a persistently large discrepancy between IBS and balance of payments on nonbank liabilities.

Capital flow adjustments to nonbank liabilities resulting from the comparisons for major countries in Table 35 consist of the differences for the United States, together with those for Belgium-Luxembourg, Denmark, and Germany. They average about $31 billion a year of additional inflows.

Other Countries

Table 36 presents for nonbank liabilities the same form of comparison that Table 34 gives for assets. It includes any OFC or other country for which IBS show larger 1986–89 average inflows than the total of non-bank “other” liability flows in the balance of payments statement. As in Table 34, the balance of payments figures include some official flows—in this case, “other capital” liabilities except loans. Table 36 includes no portfolio adjustment because for these countries the amounts are uncertain and probably small.

Table 36.

Nonbank Liabilities to Foreign Banks: Comparisons of IBS and National Balance of Payments Estimates, Annual Average Flows, 1986–89

Countries Not in Table 35¹

(In billions of U.S. dollars; net increase ( + ))

¹Countries for which average 1986–89 IBS net flows are larger than balance of payments counterparts in total “other capital” liabilities.

²1990 Balance of Payments Statistics Yearbook: total “other capital” liabilities of nonbanks.

³Total for countries in which IBS flows, net of portfolio debt to banks, are greater than balance of payments counterparts.

Table 36.

Nonbank Liabilities to Foreign Banks: Comparisons of IBS and National Balance of Payments Estimates, Annual Average Flows, 1986–89

Countries Not in Table 35¹

(In billions of U.S. dollars; net increase ( + ))

			IBS	BOP2	IBS less BOP
Offshore financial centers
	The Bahamas		0.4	—	0.4
	Bahrain		0.1	0.1	—
	Bermuda		0.8	—	0.8
	Cayman Islands		2.6	—	2.6
	Gibraltar		0.1	—	0.1
	Hong Kong		0.3	0.3	0.1
	Netherlands Antilles		0.8	—	0.8
	Panama		0.3	—	0.3
	Singapore		—	−0.3	0.3
		Total	5.6	—	5.5
Other countries
	China		2.3	0.1	2.2
	South Africa		−0.3	−0.9	0.6
	Peru		0.1	−0.2	0.4
	Lebanon		0.1	−0.3	0.4
	Other		1.4	−4.1	5.5
		Total	3.6	−5.4	9.0
Total for countries above			9.2	−5.4	14.6
Total in Table 353			31.6	0.8	30.8
Total, all countries			40.8	−4.6	45.4

¹Countries for which average 1986–89 IBS net flows are larger than balance of payments counterparts in total “other capital” liabilities.

²1990 Balance of Payments Statistics Yearbook: total “other capital” liabilities of nonbanks.

³Total for countries in which IBS flows, net of portfolio debt to banks, are greater than balance of payments counterparts.

View Table

Table 36.

Nonbank Liabilities to Foreign Banks: Comparisons of IBS and National Balance of Payments Estimates, Annual Average Flows, 1986–89

Countries Not in Table 35¹

(In billions of U.S. dollars; net increase ( + ))

			IBS	BOP2	IBS less BOP
Offshore financial centers
	The Bahamas		0.4	—	0.4
	Bahrain		0.1	0.1	—
	Bermuda		0.8	—	0.8
	Cayman Islands		2.6	—	2.6
	Gibraltar		0.1	—	0.1
	Hong Kong		0.3	0.3	0.1
	Netherlands Antilles		0.8	—	0.8
	Panama		0.3	—	0.3
	Singapore		—	−0.3	0.3
		Total	5.6	—	5.5
Other countries
	China		2.3	0.1	2.2
	South Africa		−0.3	−0.9	0.6
	Peru		0.1	−0.2	0.4
	Lebanon		0.1	−0.3	0.4
	Other		1.4	−4.1	5.5
		Total	3.6	−5.4	9.0
Total for countries above			9.2	−5.4	14.6
Total in Table 353			31.6	0.8	30.8
Total, all countries			40.8	−4.6	45.4

¹Countries for which average 1986–89 IBS net flows are larger than balance of payments counterparts in total “other capital” liabilities.

²1990 Balance of Payments Statistics Yearbook: total “other capital” liabilities of nonbanks.

³Total for countries in which IBS flows, net of portfolio debt to banks, are greater than balance of payments counterparts.

Nonbanks in offshore financial centers display much larger debt flows in the banking statistics than in balance of payments accounts. However, the excess of asset flows ($8.5 billion, including Hong Kong from Table 33) is more than the $5.5 billion in liability flows, and the net balance in both comparisons is a $3 billion outflow by OFC nonbanks. The effect of these figures on world capital flows is integrated into a more complete statement for OFCs in Chapter 9.

The $9 billion total difference for countries other than OFCs in Table 36 probably exaggerates the underreporting of loan flows in balance of payments statistics because of statistical problems in IBS with debt reschedulings and write-offs. Table 36 excludes Argentina, Brazil, and Mexico because of their major reschedulings and debt adjustments, even though differences between IBS and balance of payments are very large for the three countries.¹⁰⁰ These countries are treated separately in Chapter 7 of this report.

Reschedulings and write-offs evidently also affect the comparisons for other countries. Balance of payments figures in Table 36 cumulate to a $5 billion net reduction of debt that does not appear in IBS totals. This result suggests that debt reschedulings and debt write-offs are reflected more fully in balance of payments data than in banking statistics. If so, banking statistics may overstate credit inflows to these countries.

Nevertheless, the total difference for Table 36 countries—$14.6 billion—combined with the $30.8 billion from Table 35 (mainly for the United States) gives a total excess of IBS liability flows over balance of payments of about $45 billion a year. This $45 billion is the average amount for 1986–89 that the banking data imply could be substituted into balance of payments statements for nonbank inflows and that the Working Party has used (in annual form) to adjust the recorded figures. It is about one-half of the total of all credit flows allocated to nonbanks in IBS compilations.