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Appendix I. Summary of Data Construction and Gaps

1- Data sources

There is no bilateral information on Reserves and Financial derivatives – which represent less than 10 percent of total assets and liabilities for most, but not all, countries (see Figure I-5). For other components of the International Investment Positions, international sources used are:

  • For bilateral direct investment: the OECD, FDI positions by partner country,

  • For portfolio investment (equity and debt): the IMF’s Coordinated Portfolio Investment Survey (CPIS)

  • For Other investment, BIS locational statistics.

Information on the structure of direct investment is pulled from the OECD in most cases (Czech Republic, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Norway, Netherlands, Poland, Portugal, Slovakia, Spain, Sweden Sweden and Switzerland), from national Latvia, Lithuania, UK) or from ECB or Eurostat sources (Bulgaria, Cyprus, Malta, Romania and Slovenia). For Belgium, the total direct investment data is derived from mirror positions.

Reporting on portfolio information on the asset side to CPIS is good throughout our sample – with the exception of Lithuania and Slovenia. However, as we use mirror CPIS data to assess liabilities, it is important to note that participation to CPIS is voluntary, with 75 participants so far26 – and some key players missing (in particular China and several oil exporters), which creates an a gap between portfolio liabilities as reported in EDSS and liabilities we are able to allocate.

The main complications emanate from Other investment data.

For Other investment, banks, while reported data is directly used for BIS participating countries to describe bilateral banking claims and liabilities, we use mirror data for BIS non-reporting countries on both the asset and liability sides. Relying on information provided by BIS reporting countries on their banks’ assets and liabilities vis-à-vis banks of the non-reporting country concerned provides part of the information, but we essentially miss two things: the concerned country’s (i) bilateral bank claims and liabilities on banks from other non-reporting countries and (ii) bank claims and liabilities on all (non-resident) non-banks.

There were 41 reporting BIS countries for locational banking data at the end of 2008, with China, the Russian federation (both identified among the 25 countries with biggest, most interlinked financial sectors by a recent IMF study) and several oil exporters among the non-reporting countries.

Table I - 1

Reporting countries providing locational banking data*

article image

Reports semi-annual data only.

Source: Guidelines to the international locational banking positions, BIS, updated in December 2008.

We are further using mirror data to capture part of Other investment, non banks –mirror data containing information of claims and liabilities of non-resident banks on resident non-banks. This misses a number of bilateral positions: those involving (i) non-resident banks from BIS non-reporting countries and (ii) relations between non-banks and non-banks. We choose however not to make assumptions (such as assuming that the structure derived for part of the Other investment aggregate applies to its totality, or even to the whole sub-aggregate Other investment, non banks) and to classify as “unallocated” the missing parts (or the parts in excesses, in the few cases where reported bilateral positions is greater than the authorities’ aggregate numbers).

For the UK, an alternative source could have been the Annual Pink Book published by the Office of National Statistics (http://www.statistics.gov.uk/statbase/product.asp?vlnk=1140). While Other Investment data published in the Pink book cover banks and non-banks financial positions, bilateral coverage is limited to a smaller number of countries – total coverage being roughly similar to the data derived from BIS sources. Comparison between the two sources provides, however, an indication of the size of non banks to non banks position for a selected group of countries.

Table I - 2.

United Kingdom: Comparison of Other Investment Data, 2008

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Sources: IMF database constructed with data from BIS, OECD, ECB and nationalsources; and UK Pink Book from ONB.

2- Gaps

Tracking unallocated data provides a good benchmark of possible measurement errors and gaps in our data coverage. Figure I-1 reports gaps in assets and liabilities under Portfolio investment, Foreign direct investment, and Other investment for each country, at end-2007.

Figure I - 1
Figure I - 1

Composition of Total Unallocated Assets 1/

(Percent of total assets)

Citation: IMF Working Papers 2010, 295; 10.5089/9781455211760.001.A999

Sources: IMF database constructed with data from BIS, OECD, ECB and national sources; and WEO.1/ Weighted by country GDP.

The figure presents a bar chart on the evolution of the (GDP weighted) unallocated asset data as a percent of total assets, broken down by asset category. The size of unallocated assets (as a percent of total external assets) tends to be decreasing with time –reflecting improved coverage and reporting. 2008 marks a rebound, consistent with the fact that bilateral data are not yet fully available, and that the consistency is improved over time, with data being revised.

By asset category, it appears that the unallocated amount is to a large part due to limited coverage of other investments.

A similar exercise on the liability side indicates overall slightly larger unallocated liabilities, with notably a larger share of unallocated portfolio liabilities, reflecting uncertainty on the final holder. This is in large part due to the reliance of CPIS liabilities data on derived mirror data from participating countries’ reported assets.

Figure I - 2
Figure I - 2

Composition of Total Unallocated Liabilities 1/

(Percent of total liabilities)

Citation: IMF Working Papers 2010, 295; 10.5089/9781455211760.001.A999

Sources: IMF database constructed with data from BIS, OECD, ECB and national sources; and WEO.1/ Weighted by country GDP.
Figure I - 3.
Figure I - 3.

Unallocated Assets and Liabilities, 2008 1/

(Percent of total)

Citation: IMF Working Papers 2010, 295; 10.5089/9781455211760.001.A999

Sources: IMF database constructed with data from BIS, OECD, ECB and national sources; and WEO.1/ Data is presented as total unallocated assets and liabilities in percent of total aggregate assets and liabilities, respectively.
Figure I - 4.
Figure I - 4.

Unallocated Assets and Liabilities, 2008

(USD Billions)

Citation: IMF Working Papers 2010, 295; 10.5089/9781455211760.001.A999

Sources: IMF database constructed with data from BIS, OECD, ECB and national sources; and WEO.
Figure I - 5.
Figure I - 5.

Share of Reserves and Financial Derivatives, 2008

(Percent of total assets and liabilities)

Citation: IMF Working Papers 2010, 295; 10.5089/9781455211760.001.A999

Sources: IMF database constructed with data from BIS, OECD, ECB and national sources; and WEO.

Appendix II. Locational versus Consolidated BIS data

BIS locational banking statistics present aggregate international claims and liabilities of all banks (including affiliates of foreign banks) resident in a reporting country. The residency principal follows balance of payments guidelines and is what we used in the construction of the database. The main items include: (i) loans and deposits; (ii) debt securities; and (iii) other assets and liabilities (e.g. equity shares, derivatives).

On the other hand, BIS consolidated banking statistics are compiled on a group world-wide (headquarter) basis, and include exposures of foreign affiliates (subsidiaries and branches) of the same banking group. Consolidated data are collected on both an “immediate borrower” and “ultimate risk” basis. The difference between two data sets of consolidated banking statistics is based upon risk transfer instruments, which reallocate external claims via risk transfer vehicles to the country of ultimate risk. Consolidated data on an ultimate basis, therefore provide the best snap shot of true cross border bank exposures.

Consolidated and locational banking statistics differ for a variety of reasons, and direct comparisons are inherently problematic. Below is a listing of some of the key differences as far as claims are concerned:

  • Inter- office positions are netted out of consolidated statistics, while they are included in locational data.

  • Local claims in local currency are large for many banks, and are only included in consolidated data.

  • Locational statistics cover banks’ offices/affiliates that are located in the BIS reporting countries (43 countries) whereas consolidated banking statistics by nationality cover banks’ headquartered in BIS reporting countries, but includes information on the positions of their offices/affiliates in all countries in the World.

  • Reporting institutions in locational statistics also include in many cases non-banks (e.g. brokers and dealers) but only banks in the case of consolidated statistics.

  • Locational banking statistics include all on-balance sheet items (instruments) but consolidated foreign or international claims do not include on-balance sheet derivatives claims (positive market value). Such positions are reported separately (see BIS Table 9C). Note that for our purposes we only take the loans and deposits component in locational statistics, to avoid double counting with portfolio (CPIS) data.

Table II-1.

Comparison of External and Foreign Claims of Reporting Banks, end-2007

(in billions of US$)

article image
Source: BIS and staff estimates.

Table 2A of the BIS Locational Banking Statistics; external positions of banks.

Table 9D of BIS Consolidated Banking Statistics; consolidated foreign claims, ultimate risk basis.

1

We thank Gian-Maria Milesi-Ferretti for sharing his experience and providing helpful advice in a number of occasions, Martin Mc Conagha for sharing his knowledge of IIP statistics, notably the CPIS, and participants in EUR seminar and colleagues for constructive comments. We are grateful to the Bank of International Settlements for providing us with data on locational banking statistics on a bilateral basis and especially to Swapan-Kumar Pradhan for his attentive reading and precious clarifications. All remaining errors are our own. The non-restricted data used for the paper are available at www.imf.org.

2

While there are some restrictions due to confidentially reasons, actual bilateral positions of EU advanced economies vis-à-vis around 40 partners (including all EU advanced economies) and for Emerging European countries by groups are available.

3

See for instance A. Greenspan’s Remarks at the European Banking Congress 2004, Frankfurt, Germany, November 19, 2004, on the United States: “Although we have scant data on cross-border transactions among the separate states, anecdotal evidence suggests that over the decades significant apparent imbalances have been resolved without precipitating interstate balance-of-payments crises.”

4

Decressin and Stavrev (2009) found that the size of current account imbalances was invariant to the exchange rate regime. Berger and Nitsch (2010), however, noted that the absence of exchange rate flexibility may result in more persistence trade imbalances. This would also be consistent with Decressin and Stavrev’s finding of greater persistence in current account imbalances in countries with a fixed exchange rate.

5

The data was created by taking estimated 1970 stock positions, and cumulating flows from balance of payments data adjusted for valuation changes. For industrial countries, end-1970 stock positions were taken from Sinn (1990); developing country stock positions were taken from the OECD.

6

The 6 are Germany, France, U.K., Switzerland, Italy, and Spain.

7

The database includes the EU 27 countries (Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Italy, Ireland, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovak Republic, Slovenia, Spain, Sweden, and the United Kingdom) plus Norway and Switzerland. Data for the UK excludes Guernsey and Jersey.

8

Most of our data sources report their data in US dollars (CPIS, BIS, OECD and EDSS databases). Converting from the original currency units, which may not be the dollar, may introduce more volatility. However this is not a problem as ratios expressed as a share of GDP are furthermore not affected by the choice of the labeling currency. End of period market exchange rates taken from the IFS database are used to convert national currency units when needed.

9

In 2000, the IMF published Financial Derivatives: A Supplement to the fifth edition (1993) of the Balance of Payments Manual, which amongst other things, include a new functional category for financial derivatives.

10

Positions vis-à-vis International organizations are in most cases treated as a separate counterpart. However, BIS data includes the positions vis-à-vis the ECB and the BIS in positions vis-à-vis respectively Germany and Switzerland.

11

FDI category is defined as investment where equity participation exceeds 10 percent, and includes green field investments.

12

This approach reflects the fact that enterprise balance sheet values—whether they are regularly revalued on a current market value basis, reported on a historical cost basis, or are based on some interim but not current revaluation—represent the only source of valuation of assets and liabilities readily available in most countries. Many national FDI data releases indicate that they follow current BPM5 standards, without precisely stating if book or market valuation methods are used.

13

See BIS (2008), “Guidelines to the international banking statistics”, for a precise description.

14

In the case of Estonia, within the “other investment” category, bilateral information is only available for “total other investment” data.

15

For BIS reporting banks’ exposures to Greece, Ireland, Portugal and Spain see for instance BIS Quarterly Review, December 2010.

16

They note, like others (Fidora, Fratzscher and Thimann (2006)) that holdings in a fund located in a country A emanating from a resident of a country B and invested in a debt instrument of a country C are likely to be reported as an equity claim from a resident of country B on A. This misses the effective nature of B resident’s final investment and its destination. Similarly, the fund’s investments and liabilities appear in the foreign position of country A on other countries. This particularly affects countries with a large fund industry (Luxemburg, Ireland, UK, Switzerland) but also results in a distortion in country B (and C)’s effective claims and liabilities. Lipper has some partial fund industry data on cross border exposures.

17

Such asymmetries may arise from different treatments of transactions reported by financial Special Purpose Entities.

18

While the overall discrepancy between aggregate data and reported bilateral positions is small in the case of the Netherlands, it must be noted that when including financial Special Purposes Entities, assets and liabilities dramatically increase and result in alternative IIP aggregates (non reported under EDSS).

19

OI, bank assets total about $900 billion in 2007, while the sum of bilateral claims are about $1.4 trillion. However, a negative discrepancy of a similar size occurs on Switzerland’s other investment bank liabilities. Most likely these gaps stem from a misrepresentation of the final holder of a claim or a liability by external financial partners. This may be due to the importance of trustee business on behalf of non-residents (see also Milesi-Ferretti, Strobbe and Tamirisa (2010)).

20

Our data and ECB data for Euro Area external position are broadly consistent, the main difference arising from unallocated intra-EA financial derivatives and reserves. The overall difference is limited to 2%-6% from 2001 to 2008 on the asset side and 1%-5% on the liabilities side in percent of total EA assets as reported by the ECB (respectively liabilities).

21

Thus the perimeter of EU IIPs changes with time: in 2002 (respectively 2008), it refers to the net external position of countries vis-à-vis other countries member of the EU in 2002 (respectively 2008). The same applies to Euro area IIPs.

22

Some countries have to be treated as a group due to the restricted nature of some information.

23

Bilateral trade balance positions are not symmetric, since exports are f.o.b. (freight on board, covering transportation and insurance to the border, while imports are c.i.f. (cost, insurance and freight, covering shipping freight, transport and insurance from port).

24

Excluding Member states that joined in 2004 for confidentiality reasons.

25

The Euro nominal effective exchange rate has appreciated by slightly less than 20 percent between end 2002 and 2008, reducing the relative share of liabilities not denominated in Euros.

26

In addition to our 27 countries: Argentina, Aruba, Australia, Bahrain, Bermuda, Brazil, Canada, Cayman Islands, Chile, Colombia, Costa Rica, Egypt, Guernsey, Hong Kong SAR of China, Iceland, Indonesia, Isle of Man, Israel, Japan, Jersey, Kazakhstan, Republic of Korea, Lebanon, Macao SAR of China, Malaysia, Mauritius, Netherlands Antilles, New Zealand, Philippines, Russian Federation, Singapore, South Africa, Thailand, Turkey, Ukraine, United States, Uruguay, República Bolivariana de Venezuela.

European Financial Linkages: A New Look At Imbalances
Author: International Monetary Fund
  • View in gallery

    Composition of Total Unallocated Assets 1/

    (Percent of total assets)

  • View in gallery

    Composition of Total Unallocated Liabilities 1/

    (Percent of total liabilities)

  • View in gallery

    Unallocated Assets and Liabilities, 2008 1/

    (Percent of total)

  • View in gallery

    Unallocated Assets and Liabilities, 2008

    (USD Billions)

  • View in gallery

    Share of Reserves and Financial Derivatives, 2008

    (Percent of total assets and liabilities)