Securitisation and the Euro Area Accounts The institutional sector framework to financing

1. Securitisation and the Euro Area AccountsThe institutional sector framework to financing Andreas Hertkorn, ECB DG-Statistics European Central Bank WPFS Workshop on Securitisation OECD/Banco de España, Madrid, 27&28 May 2010

2. Overview Statistics for a monetary union • Part I: EAA – full presentation of non-MFI financing • Full coverage of financing and investment • Coverage of all financial intermediaries • Consistent presentation of security and loan markets • Part II: EAA and the financial crisis • Securitisation not related with origination of new loans • Difficulties to reconcile security issues and purchases • Part III: Integration of new statistics into the EAA • Securitisation (FVC) statistics, Security holding statistics (SHS) • => Who is financing whom – counterpart sector matrixes

3. 1. Full presentation of non-MFI financing: Introduction • EAA are a complete set of financial accounts and non-financial accounts by institutional sector • Early main use of financial accounts: non-MFI financing to Households (HH) and Non-financial corporations (NFCs): • Since 2003: financing of HHs and NFCs from non-MFIs: loans from Other Financial Intermediaries (OFIs) and Rest of the World (RoW) • Since 2007: Full coverage of financing and investment of all sectors: • => Comprehensive and consistent presentation of intermediated financing (loans), security markets (debt securities and shares) and other financing (e.g. other equity and, accounts payable/trade credits): • Loans granted (by MFIs, OFIs, Row …) = Loans received (HHs, NFCs…) • Securities issues (by MFIs, OFIs, Gov’t…) = Sec. purchases (HHs, RoW…)

4. 1. Full presentation of non-MFI financing: Challenges • Full, consistent coverage of non-MFI financial intermediaries and interactions with the Rest of the World proofed difficult • Other financial intermediaries sector is heterogenous • Other corporations engaged in lending (financial leasing). investment funds, financial holdings/subsidiaries, special purpose vehicles (SPEs)‘… • Accounting treatment of SPEs differs between countries • - Consolidation with MFIs? • - Coverage of non-resident units?

5. 1. Full presentation of non-MFI financing: analytical needs • Available information (e.g. metadata from countries): • Developments in OFI financing to HHs driven by • - Financial Vehicle Corporations engaged in securitisation (FVCs) • (securitisation of mortgage loans to households) • Developments in OFI financing to NFCs driven by • - Financial subsidiaries (issuing debt securities on behalf of NFCs) and • - Financial Vehicle Corporations engaged in securitisation (FVCs) • Large off-balance sheet activities of MFIs • Increased user interest in FVCs • Reporting requirements for FVC coordinated with enhanced reporting requirements for MFIs (integrated reporting approach)

6. II. EAA and the financial crisis: NFS financing • Decline inMFI loans in 2008q3/09q2 partly offset by OFI loans • OFI loans not due to real economic activity/new loan origination • Securitisation of old MFI loans • But who purchases FVC’s security issues?

7. II: EAA and the financial crisis: debt securities EAA’s complete presentation of financial markets became increasingly difficult for debt securities: Initial imbalances between debt security issues and purchases Average absolute imbalances for transactions (EUR bn) Largely due to different treatment of retained securitisation - Recording of security issues by FVCs - Non-recording of security purchases by MFIs (in some countries before harmonisation of MFI BSI statistics)

8. II: EAA and the financial crisis If MFIs retain (large parts of) ABS issued by FVC =>IFRS: - no de-recognition of loans in MFI balance sheet - proceeds of securitisation recorded as deposits => no recording of ABS holdings by MFI

9. II: EAA and the financial crisis => lessons • Increased data needs for monetary/financial, economic and financial stability analysis • Financial links between sector – who is financing whom? How is the risk distributed? Who bears holding losses ? • EAA: counterpart sector information for loans • EAA: holding losses/gains for securities • Securitisation: integrated reporting of MFIs and FVC engaged in securitisation • Development of counterpart sector information for securities: Security holding statistics (SHS)

10. II: EAA and the financial crisis => lessons • Need for harmomised and and comprehensive coverage of securitisation • BSI regulation: harmonised treatment of securitisation • FVC regulation • New ESA: - Description of securitisation - FVCs explicitly part of OFI sector Important for the compilation of EAA using national financial accounts: FVCs are separate institutional units irrespective of whether set-up domestically or in other member state

11. III: Integration of new statistics into the EAA • New integrated MFI/FVC reporting of securitisation will increase coverage, consistency and detail for OFIs: • - consistent recording of domestic and cross border securitisation • - consistent recording of (de-recognised) loans and securities • Counterpart sector information for loans needs to be complemented by counterpart sector detail on securities • This will then allow to answer questions like • Which sector holds what kind of securities issued by FVCs backed by loans to households? • How are holding losses by sectors matched by their capital?