Systemic Indicators: Developing Inputs on

System-Wide Risks for Financial Stability

and Macroprudential Policy

Charles Enoch
Deputy Director
Statistics Department, IMF
July 9, 2009
 Financial Soundness Indicators:
Introduction

 FSIs intended as summary indicators of the

financial soundness of institutions and
markets in an economy.
 Analysis of FSIs would therefore complement
other assessments of soundness, such as
early warning indicators and macroeconomic
vulnerability exercises.
 Multiple FSIs: evolving views on definitions,
coverage, and measurement.

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 Financial Soundness Indicators: Legacy
of Earlier Crises
 Conclusion from 1994 Mexican crisis
that data partly responsible.
 Further focus on data after Asian
crisis.
 Development of data standards
(SDDS and GDDS).
 Recognition of gap between monetary
data and microprudential
information—focus on
“macroprudential indicators” (MPIs).
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 Initial Usage of FSIs

 Introduction of FSAPs.
 Need for broad set of indicators used for
strengthened surveillance: MPIs
comprising aggregated prudential
indicators.
 Consultative meeting on
Macroprudential Indicators held at IMF
HQ September 1999.
 Redesignation of MPIs as FSIs after
2001 IMF Board meeting (others, such
as ECB, still use MPI terminology).
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 Survey and Selection

 Surveys of member countries on

availability and usefulness of potential
MPIs.
 122 responses (covering 142 countries
and jurisdictions); all covered user
questionnaire, two-thirds the compilation
and dissemination questionnaire.
 IMF Board endorsed list (slightly modified
in 2004) that comprises 15 core and 26
encouraged indicators.
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 Choice of Indicators

 Issue of coordination across agencies.

 Limited resources available for exercise.

 Parsimony.

 Reflecting prudential practices, CAMEL

framework underpinned structure.
 Recognition this was initial list.

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 Choice of Indicators (2)

 Focus on core markets and institutions.

 Analytical significance.
 Revealed usefulness through high scores
in the 2000 survey results.
 Relevant in most circumstances.
 Availability.
 Compilation Guide drafted 2002-2004

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 Core Indicators

 Regulatory capital to risk weighted assets.

 Regulatory tier 1 capital to risk weighted assets.
 Nonperforming loans net of provisions to capital.
 Nonperforming loans to total gross loans.
 Sectoral distribution of loans to total loans.
 Return on assets.
 Return on equity.
 Interest margin to gross income.
 Noninterest expenses to gross income.
 Liquid assets to total assets.
 Liquid assets to short-term liabilities.
 Net open position in foreign exchange to capital.
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 Encouraged Indicators:
Encouraged FSIs for Deposit Takers

 Capital to assets.
 Geographical distribution of loans to total loans.
 Gross asset positions in financial derivatives to capital.
 Gross liability positions in financial derivatives to capital.
 Trading income to total income.
 Personnel expenses to noninterest expenses.
 Spread between reference rates and deposit rates.
 Spread between highest and lowest interest rates.
 Customer deposits to total noninterbank loans.
 Foreign currency denominated loans to total loans.
 Foreign currency denominated liabilities to total
liabilities.
 Net open position in equities to capital.

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 Encouraged Indicators:
OFCs (2) and NFCs (5)

 Assets to total financial system assets.

 Assets to GDP.
 Total debt to equity.
 Return on equity.
 Earnings to interest and principal
expenses.
 Net foreign exchange exposure to equity.
 Number of applications for protection
from creditors.
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 Encouraged Indicators
Household (2), Market Liquidity (2), Real Estate (4)

 Household debt to GDP.

 Household debt service and principal payments
to GDP.
 Average bid-ask spread in securities markets.
 Average daily turnover ratio in the securities
market.
 Residential real estate prices.
 Commercial real estate prices.
 Residential real estate loans to total loans.
 Commercial real estate loans to total loans.

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 Coordinated Compilation Exercise

 62 countries invited to participate in Coordinated

Compilation Exercise (CCE), modeled on
CPIs—essentially the countries in SDDS.
 52 have committed to supply data and
metadata.
 First data points to be disseminated by end-July,
with metadata, with commitment to maintain
dissemination.

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 July 2009 Dissemination (1)

 Expectation data for around 25-35

countries will be disseminated; more
(and more metadata) to follow. (Around
seven countries disseminate more than
one data point.)
 7-14 G20 countries expected to be
among disseminators.

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 July 2009 Dissemination (2)

 Nearly all countries disseminating will disseminate

all the core indicators.

 Around six countries will disseminate at least

around 20 encouraged indicators, over half at least
10 encouraged indicators.

 Around half will disseminate quarterly, one semi-

annually, the rest annually.

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 Results of the CCE

 Major efforts put into preparation of data and

metadata in many countries.
 Institutional arrangements put in place in many
countries for interagency coordination.
 Significant progress in understanding issues and
moving towards harmonization, e.g., as regards
consolidation.
 Resource intensity of exercise has constrained
e.g., countries’ willingness to construct past data.
 Over time, time series will be generated for an
increasing number of countries.

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 Issues Concerning FSIs

 Periodicity—crisis shows importance of high

frequency.
 Heavy concentration of indicators on banks,
especially in core indicators.
 Aggregate figures hide variations in dispersion.
 Lack of time series impedes analysis and
empirical testing.
 Questions whether (and which) existing FSIs
“predicted” the present crisis.
 Lack of clear “critical points” that would indicate
problems.

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 Going Forward (1)

 Review of FSIs to possibly rebalance between core

and encouraged categories.
 Increasing focus, for instance, on leverage ratios
rather than capital as lead indicator of problems.
 Increasing focus beyond the on-balance-sheet
activities of commercial banks.
 Recognition of real estate prices as key indicator of
emerging problems.
 Further focus also on balance sheet data and
systemic risks.

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 Going Forward (2)

 Revisions to, and increasing harmonization of,

regulatory framework (especially in Europe), will lead
towards international convergence in calculation of
FSIs, might also complicate creation of consistent
time series .
 Present crisis may lead to added commitment at
national level to devote resources to FSIs and other
crisis-related statistics; could permit broadening in
range of FSIs.
 Continued collaboration needed between statistical
and financial experts.
 Any revision to IMF core and encouraged indicators
needs approval of IMF Board.

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 FSIs and SDDS

 In December 2008 IMF Executive

Board invited staff to return within a
year with work program to identify
FSIs (and other financial indicators)
for inclusion into SDDS on an
encouraged basis.
 If accepted, would represent
significant enhancement to SDDS.

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 Feedback Requested...

 Revisions and refinements to FSIs

require feedback from users, to
complement the ongoing in-house
analytical and operational work.

Thank you

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