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Hans Genberg Hong Kong Monetary Authority

Data Requirements For Assessing the Health of Systemically Important Financial Institutions (SIFIs) for IMF-FSB Users Conference Washington, D. C., July 8-9, 2009. Hans Genberg Hong Kong Monetary Authority. Outline. What is a SIFI? What data do we currently collect?

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Hans Genberg Hong Kong Monetary Authority

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  1. Data Requirements For Assessing the Health of Systemically Important Financial Institutions (SIFIs) for IMF-FSB Users Conference Washington, D. C., July 8-9, 2009 Hans Genberg Hong Kong Monetary Authority

  2. Outline • What is a SIFI? • What data do we currently collect? • Data requirements before the credit crisis • Extra data requirements after the credit crisis • What other data can potentially improve our risk assessment?

  3. Characteristics of SIFIs Systemically Important = potentially pose significant risks to financial stability = potentially pose significant risks of severe disruptions to the smooth functioning of the financial system Size is the single most important determining factor – the larger it is , the greater its potential systemic consequences Apart from size, what other features that may characterize a SIFI?

  4. Characteristics of SIFIs Financial institutions whose difficulties tend to produce a domino effect in the financial system • Deposit taking financial institutions • Great impact on the confidence of the general public • Major financial market players • Large number of counterparties

  5. Characteristics of SIFIs Financial institutionswhose profitability tends to be positively correlated with financial market volatility : • Hedge fund • Highly leveraged financial institutions • Volatility = profitable opportunities = risks to stability of the system • Lead to herding and rush-to-exit • Some trading strategies undermine the financial system

  6. Characteristics of SIFIs : Hedge Fund and Highly Leveraged FIs They are difficult to monitor because of : 1. The absence of supervisory mandate under existing laws • Credit lines are provided by banks overseas 2. The lack of international framework for information exchange

  7. Data RequirementsBefore the Global Credit Crisis Balance Sheet • Asset and Liabilities • Capital and reserves, deposits from customers, cash, and certificates of indebtedness • Profit and Loss • Interest income/ loss, income from investment, and dividend • Large Exposures • Commitments and contingencies, interest rate contracts, and foreign exchange contracts • Loans and Advances • Classification of loans and advances by economic sector, and asset quality

  8. Data RequirementsBefore the Global Credit Crisis Capital Adequacy • Capital Adequacy • Core capital, supplementary capital, and risk-weighted positions • Interest Rate Risk • Total interest bearing assets and liabilities classified by time band • Market Risk • Debt securities, debt-related derivative contracts, interest rate derivative contracts in the trading book, and FX and equity exposures

  9. Data RequirementsBefore the Global Credit Crisis Liquidity • Liquidity • Gold,marketable securities, exchange fund bills/notes, and eligible loan repayment

  10. Additional Data RequirementsAfter the Global Credit Crisis • Two half-yearly surveys on off-balance sheet exposures and debt securities portfolios • Banks encouraged to disclose: • Sub-prime related assets and their impairment charges • Complex financial instruments and structured financial products

  11. Potentially Useful Data • No significant data gaps • Two areas of potentially useful data for conductingstress testing analysis • Breakdown of undrawn irrevocable credit commitments by types of customers • Creditworthiness of debt securities other than credit ratings

  12. Potentially Useful Data: Undrawn Irrevocable Credit Commitments by Customer Type • The breakdown of undrawn irrevocable credit commitment by customer type is important in assessing contingent liquidity risk • Sources of contingent liquidity risk : • Considerable drawdowns on irrevocable credit commitments • Over-concentration of irrevocable credit commitments

  13. Potentially Useful Data: Creditworthiness of Debt Securities • Drawbacks of through-the-cycle credit ratings • Low sensitivity of ratings to current market risk • Particularly important for SIFIs risk assessment • Usually hold larger investment portfolio • Exposed to significant market risk Examples • Current Market Yield • Internal model default risk of banks’ holdings of debt securities

  14. Potentially Useful Data: Framework for Information Exchange and Disclosure • International framework for information exchange of large non-bank SIFIs could enhance the monitoring process • Central banks and financial regulators could disclose data on the activities of non-bank SIFIs at an aggregate level

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