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Cross Border Financial Positions and Exposures Juan Pablo Graf Banco de México

Cross Border Financial Positions and Exposures Juan Pablo Graf Banco de México. I. Introduction. Information Gaps (Authorities). Foreign Sectors. Banks. Non Banks. Banks. Other Financial Entities. Domestic Sectors. Listed Corporations. Non - Listed Corporations. Households.

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Cross Border Financial Positions and Exposures Juan Pablo Graf Banco de México

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  1. Cross Border Financial Positions and Exposures Juan Pablo Graf Banco de México

  2. I. Introduction • Information Gaps • (Authorities) Foreign Sectors • Banks • Non Banks • Banks • Other • Financial Entities Domestic Sectors • Listed • Corporations • Non - Listed • Corporations • Households

  3. I. Introduction • Information Gaps • (Publicly disclosed) Foreign Sectors • Banks • Non Banks • Banks • Other • Financial Entities Domestic Sectors • Listed • Corporations • Non - Listed • Corporations • Households

  4. % Market Share 23.5 BBVA-BANCOMER 21.2 CITIBANK-BANAMEX 14.4 SANTANDER-SERFIN 11.1 BANORTE 9.5 HSBC INBURSA SCOTIABANK-INVERLAT 3.2 I. Introduction The majority of systemically-important banks are foreign-owned 4.0 Other subsidiaries of foreign banks (14) 4.6 8.4 Other Banks (21)

  5. II. Exposures of financial corporations Foreign Sectors Domestic Sectors

  6. II. Exposures of financial corporations Subsidiaries and Parent Banks • Financial regulation limits the exposure that domestic banks may have to related counterparties (i.e. individuals, firms and any financial entity owned by the same shareholders). • For domestic banks, which are subsidiaries of foreign financial groups, the limits apply to any exposure to parent banks and their foreign subsidiaries (e.g., London, Cayman) • As of 2008: • The limit applies to all financial exposures (i.e., loans, deposits, securities, repos, the net exposure arising from derivative transactions; and settlement risk in forex exposures) • The limit was reduced to 50% of Tier 1 capital.

  7. II. Exposures of financial corporations Subsidiaries and Parent Banks • Some subsidiaries increased their lending to their parent banks significantly. These positions have been closely monitored. However, this information is not made public.

  8. II. Exposures of financial corporations 1 Information gaps • Detailed data collected by central bank allowed a prompt assessment of financial entities exposures to “toxic” assets • This information was very useful to assess early the level of exposure. This information was not made public.

  9. III. Exposures of non-financial corporations • Type of exposure: • Derivatives OTC • Debt with banks and other FIs • Debt through securities issued abroad • Information sources: • Creditor data • BIS-type data • Central bank survey Timeliness (work-in-progress) Granularity (maturity,counterparties currencies) ? • Debtor data • Listed corporates (see next) • Non-listed ? • Credit registry ?

  10. Non-financial corporations in emerging market economies reported large losses due to FX OTC derivatives IV. OTC Derivatives Exchange Rate Domestic Currency / USD 15 days moving avg.

  11. IV. OTC Derivatives • Host authorities do not have timely and detailed information about derivative operations between foreign banks and other FIs domestic non-financial firms • Financial counterparties (domestic and foreign) might not have information about firms’ derivatives operations with other counterparties • Foreign financial counterparties of domestic firms do not have information about firms’ credit history • Complexity of products

  12. IV. OTC Derivatives • Regulatory responses (May 2009) • Securities Markets Regulation(Periodical reporting - Quarterly) • Market-to-market positions / Underlyings / Notional amounts • Detailed payment conditions • Contingency analysis • Financial Information Rules (Financial Statement Disclosure Rules) • Risks involved (detailed analysis) • Hedging structure of every derivatives position • (including “off- balance sheet” transactions) • Collaterals • Valuation techniques • Levels of exposure

  13. V. Non-listed non financial corporations and households Foreign Sectors Domestic Sectors • Creditor data • Timeliness, granularity of disclosures (maturity, counterparties, currency) • Households: debt or equity

  14. V. Non-listed non financial corporations and households Investments in foreign funds “through” an institution in Mexico (“low profile soliciting”, e.g. Stanford) Domestic authorities have no power over such investments. • Response to “Madoff and Stanford” cases: stress the importance of investors verifying that institutions are authorized to take deposits or investments. • Irregular deposit taking and low-profile soliciting will continue, thus information gaps for domestic authorities remain. • Cooperation among international authorities may mitigate the information gaps and greatly contribute to understanding risks borne domestically from investments in foreign funds.

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