Session 3: Cross-Border Financial Positions and Exposures

1. Session 3: Cross-Border Financial Positions and Exposures What data do we need to form a better picture of cross-border exposures, including among financial institutions and financial systems, and external debt obligations?

2. Cross Border Risks Institutions • Risk-bearing • Policy actions ultimately taken at institution level • Types of risk: • Maturity mismatches • Currency mismatches • Open positions Markets • Risk-matching • Focus on transparency to identify collective risks • Types of risk: • Counterparty risk • One-way market positioning • Liquidity Risk Focused Approach • Systemically important • “80/20” approach • Feasibility

3. Financial Institutions

4. Financial Institutions Local FI Branch Local FI Local FI Local FI Local FI Branch Reg’FI Local FI Local FI • Risk-Focused Approach • Systemically-important global financial institutions Reg’FI Local FI Sub’ry Branch Local FI Local FI Global FI Global FI Branch Sub’ry Branch Branch Global FI Branch Local FI Reg’FI Branch Branch Sub’ry Local FI Local FI Local FI Local FI Branch Sub’ry Local FI Local FI Local FI Reg’FI Sub’ry Branch Local FI Local FI Local FI

5. Supervision of Global FIs Home-HostColleges Home HomeSup’vr HomeSup’vr HomeSup’vr Global FI Global FI Global FI Host Branch Branch Sub’ry Branch Sub’ry Branch Sub’ry Branch Branch HostSup’vr HostSup’vr HostSup’vr

6. Data Gaps Home-HostColleges Home HomeSup’vr HomeSup’vr HomeSup’vr  Enhance Aggregated Overview Global FI Global FI Global FI Host Branch Branch Sub’ry Branch Sub’ry Branch Sub’ry Branch Branch HostSup’vr HostSup’vr HostSup’vr

7. Enhancing Home-Host Co-operation HomeSup’vr Current Framework Proposed Template • Dated Information • Capital ratios • NPL ratios • LTD ratios • Headoffice funds • Liquidity profile • Quarterly results • Public Sources • News • Ratings actions • Analyst reports • Credit default spreads • Group-level ALM (global funding model) • Capital and sources of capital • Intragroup exposures • Group exposure to unregulated entities • VAR concentration • Trade finance, e.g. bills, LCs • Counterparty concentration • Stress test results • Off balance sheet items Global FI • Supervisory Colleges • When invited only Branch Branch Sub’ry HostSup’vr HostSup’vr HostSup’vr

8. Aggregated Overview HomeSup’vr HomeSup’vr HomeSup’vr Aggregated Overview Global FI Global FI Global FI Shock Identification Transmission Channels • Sources of disturbances to major financial systems • NPLs, funding profiles • Credit conditions • Concentrated exposures • Holdings of securities and loan exposurese.g. property, corporate (size, rating), consumer, securities (rating, maturity), trading assets • Interbank and portfolio capital flows: • Consolidated cross-border interbank exposures (each other) • Banking exposures to non-bank FIs, e.g. insurers, hedge funds • Greater disclosure of hedge fund terms of funding, leverage, etc. Branch Branch Sub’ry Branch Sub’ry Branch Sub’ry Branch Branch HostSup’vr HostSup’vr HostSup’vr

9. Proposed Monitoring Framework Policy action feedback loop Framework • Home supervisors • Submit common data template • IFI • Aggregates and analyses data • Identifies collective risks • Publishes assessment • Feedback loop • Supervisors check individual institution risk against collective risks • Supervisors undertake policy action if necessary International Financial Institution Aggregate systemically-important global FIs Home-Host College Aggregated Overview HomeSup’vr HomeSup’vr HomeSup’vr Global FI Global FI Global FI

10. Proposed Monitoring Framework Policy action feedback loop Delineation of Focus Areas Home-Host Colleges • Institution focused • Proprietary risks Aggregated Overview • System focused • Market-wide risks International Financial Institution Aggregate systemically-important global FIs Home-Host College Aggregated Overview HomeSup’vr HomeSup’vr HomeSup’vr Global FI Global FI Global FI

11. Financial Markets

12. Markets Risk-Focused Approach “Bang for the buck” • PRIORITY • Interest rate swaps • Interest rate options Large • ACTIONABLE • Credit Default Swaps • Collateralised Debt Obligations • Collateralised Loan Obligations • Currency options • Forward Rate Agreements • LOW HANGING FRUIT • Index options • Equity options • Commodities and environment Small No exchange, clearinghouse or central settlement system Substantially on exchange, clearinghouse or central settlement system

13. Market Infrastructure Risks • Systemically-important counterparties • One-way market positioning • Cross-border contagion • Liquidity Indicators • Top volume • Counterparties • Contracts and reference names • Open interest • Jurisdiction • Amount of assets on loan • Settlement failures • Turnover volume • Collateral types and haircuts

14. Unified Framework

15. Proposed Monitoring Framework Policy action feedback loop International Financial Institution International Financial Institution Cross-Check Systemic Risks INSTITUTIONS MARKETS Aggregated Overview Home-Host College HomeSup’vr HomeSup’vr HomeSup’vr Exch Clear’house SSS Global FI Global FI Market Market Global FI Market

16. Way Forward Institutions • Identify systemically-important FIs and criteria • Build common data template for home-host co-operation on systemically-important FIs • Aggregate common indicators and analyse common risks to systemically-important FIs Markets • Identify systemically-important markets and central infrastructure • Build template of indicators of different market risks • Migrate systemically-important OTC markets to exchanges and clearinghouses Pillars of Co-operation • International organisations, supervisors, market infrastructure • Data collection is a means; policy co-ordination to be effective • Do not inadvertantly impede cross-border capital flows