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Policy and Statistical Issues Underpinning Financial Stability: The IMF Perspective

Policy and Statistical Issues Underpinning Financial Stability: The IMF Perspective. Robert W. Edwards Director Statistics Department International Monetary Fund OECD World Forum on Statistics, Knowledge, and Policy Istanbul, June 27-30, 2007. Financial Stability in Global World.

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Policy and Statistical Issues Underpinning Financial Stability: The IMF Perspective

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  1. Policy and Statistical Issues Underpinning Financial Stability: The IMF Perspective Robert W. EdwardsDirectorStatistics DepartmentInternational Monetary FundOECD World Forum on Statistics, Knowledge, and PolicyIstanbul, June 27-30, 2007

  2. Financial Stability in Global World • Unprecedented deepening in financial markets • Internationalization of financial institutions • National economies part of vast network of closely interconnected balance sheets, with potential for severe spillover effects

  3. Financial Stability Implications • For individual institutions, globalization helps diversify risks and may have improved financial stability, particularly in face of relatively small shocks • At the systemic level, severe crises may be more broad-ranging and difficult to deal with due to spillovers • Financial instability in one country may be transmitted to other countries or affect developments in regional or global markets

  4. Containing Potential Risks • Need to reduce likelihood of systemic crises and limit their severity if they occur: • Effective monetary policy • Sound fiscal stance • Deep, broad, and resilient financial systems • Coordinated oversight of cross-border financial institutions • Cross-border crisis management and resolution arrangements

  5. Role of the IMF • Through universal reach and expertise on macroeconomic and financial issues and on statistics: • Enhance monitoring of global economy • Help individual countries strengthen resilience of their economies • Help provide timely, comprehensive, and internationally comparable data

  6. New Directions in Financial Surveillance • No single widely-accepted methodology for assessing financial sector stability • Two key questions: • What are key interactions between macro-economy, financial markets, and financial institutions? • What is role of financial sector in initiating, transmitting, or amplifying disturbances in the economy?

  7. IMF Financial Surveillance Framework • Continued emphasis on the Financial Sector Assessment Program (FSAP) • Designed to assess stability of system as a whole • 120 initial assessments and 27 updates (June 2007) • Greater financial coverage in Article IV consultations • Ensuring continuity between FSAP assessments • Integrating financial analysis into traditional macro-economic analysis. • More global perspective • Integrating multilateral and regional issues • Regional FSAPs

  8. FSAP Participation (as of May 2007)

  9. Analytical Tools • Use of indicators in surveillance • Financial Soundness Indicators (FSIs) of banks and their clients are a key tool of surveillance • Forward-looking tools such as stress tests and market-based indicators support analysis of FSIs • The Balance Sheet Approach (BSA) • Based on stocks of assets and liabilities of economic sectors • Examine determinants and evolution of these stocks and how they can trigger flow adjustments (capital inflows, holdings of foreign currency assets)

  10. Statistical Initiatives • Collecting and presenting high quality statistical data to support analytical work needed for surveillance: • Intensification of cross-border financial flows and positions with spillover effects • Lack of good-quality cross-country comparable financial soundness indicators • Balance sheet nature of major recent crises

  11. Cross-Border Financial Flow Data • External Sector Data • International Investment Position (IIP) • Coordinated Portfolio Investment Survey (CPIS) • Coordinated Direct Investment Survey (CDIS) (planned) • Data Template on International Reserves and Foreign Currency Liquidity (Reserve Template) • Currency Composition of Official Foreign Exchange Reserves (COFER) • Joint External Debt Hub (JEDH)

  12. Financial Soundness Indicators • To encourage compilation of internationally comparable FSIs: • Compilation Guide: Financial Soundness Indicators (12 core and 27 encouraged FSIs) • Coordinated Compilation Exercise • 62 participating countries • End-2005 FSI data and metadata posted on IMF website for 57 countries

  13. Meeting data needs of BSA • Intensive data framework requiring stock data, currency denomination, and maturities of sectoral assets and liabilities • Standardized Report Forms (SRFs) introduced in 2005 • SRF data provide most of the information needed for BSA • About 80 countries report SRF data to IMF • Other data sources: CPIS, IIP, and JEDH

  14. Much Work Remains to be Done • Policy and analytical front • Provide key insights about financial risks and vulnerabilities • More attention to macro-linkages • Better use of available data • Strengthen focus on spillovers and cross-country links • Statistical front • Wider production and reporting of timely data to shed light on global financial flows • Greater coverage of data essential for BSA • Regular collection of FSIs and expansion of indicators to include FSIs for non-banks

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