1. European Central Bank, Directorate General Statistics,
Banking statistics as an input for euro area monetary policy conduct: the institutional framework and coping with financial innovation
Antonio Colangelo
European Central Bank, Directorate General Statistics,
Monetary & Financial Statistics Division

2. Contents 0. ESCB statistics
Aim and scope of Monetary Financial Institutions (MFIs) balance sheet statistics
The statistical framework of monetary analysis
Coping with financial innovation:
Securitisation
Central counterparties

3. Contents
0. ESCB statistics

4. 0. ESCB statistics (1) ESCB functions:
Define and implement monetary policy
Conduct foreign exchange operations/hold and manage official foreign reserves
Promote smooth operation of payments systems
Contribute to smooth conduct of policies relating to banking supervision and stability of the financial system
the latter is now complemented by the ECB analytical and statistical support to the European Systemic Risk Board

5. 0. ESCB statistics (2) Each country has its statistics GDP population
inflation
money
external balance, …
A monetary (and economic) union is a single economic entity
common currency and monetary policy
free movement of persons, goods and services, capital flows
increasingly integrated (financial) markets
A monetary (and economic) union needs high quality statistics to
assess the economic developments in the whole area
base its forecasts
assess the transmission of monetary policy decisions on the economy
analyse and assess its financial stability
support the conduct of other policies (e.g. financial integration)

6. 0. ESCB statistics (3)
Is it not possible to simply add up national data?
Even if and when national data are
timely,
at the same frequency and
accurate enough…
concepts and definitions may still diverge (following international standards which may also need to be interpreted)
some classifications differ, e.g. intra-transactions need to be classified as “domestic” from the viewpoint of the monetary union and, thus, allocated to SNA/ESA sectors – once asymmetry-free
institutions of the monetary union (e.g. the ECB) are residents of the union, but not of any country (even where they are located)

7. Contents 0. ESCB statistics
Aim and scope of Monetary Financial Institutions (MFIs) balance sheet statistics

8. 1. Aim and scope of MFI balance sheet statistics (I)
ECB President Trichet at Press Conference 10 June 2010:
“… the annual growth rate of M3 was unchanged at -0.1% in April The annual growth rate of loans to the private sector increased somewhat further and turned positive, but remained weak at 0.1%. These data continue to support the assessment that the underlying pace of monetary expansion is moderate and that inflationary pressures over the medium term are contained.
The weak annual growth rate of bank loans to the private sector conceals that monthly flows have now been positive for a number of months. At the same time, these aggregate developments continue to reflect a strengthening in the annual growth of loans to households, while the growth of loans to non-financial corporations has remained negative. A lagged response of loans to non-financial corporations to economic activity is a normal feature of the business cycle.”

9. 1. Aim and scope of MFI balance sheet statistics (2)
Primary objective of price stability
Governing Council takes
monetary policy decisions based
on a unified overall assessment
of the risks to price stability
Economic
analysis
Monetary
analysis
Analysis of economic dynamics and shocks
Analysis of money
and credit based on
MFI statistics
Cross-checking
Macro-economic
projections
Full set of information

10. 1. Aim and scope of MFI balance sheet statistics (3)
What is money?
Any definition of money is based on three crucial aspects:
Identification of monetary instruments
Financial assets that for their characteristics are – to a certain degree - substitutes of currency
The nature and characteristics of financial assets and means of payment change over time and differ across economics areas, hence the different definition of monetary instruments used across central banks.
Financial instruments also differ by their degree of “liquidity”, i.e. their degree of substitutability to banknotes in circulation, hence the definition (and monitoring) of several monetary aggregates by central banks.

11. 1. Aim and scope of MFI balance sheet statistics (4)
Definition of the money-issuing sector
Financial institutions that issue financial assets that are included in the set of monetary instruments.
 Monetary Financial Institutions
Definition of the money-holding sector
Resident entities that hold these monetary instruments and whose money disposal is of interest for the transmission mechanism from interest rates to prices

12. 1. Aim and scope of MFI balance sheet statistics (5)
M3 growth

13. 1. Aim and scope of MFI balance sheet statistics (6)
M3 vs. credit developments

14. Contents 0. ESCB statistics
Aim and scope of Monetary Financial Institutions balance sheet statistics
The statistical framework of monetary analysis

15. 2. The statistical framework of monetary analysis (1)
Monetary Financial Institutions (MFIs)
= financial institutions which together form the money-issuing sector of the euro area
= central banks
+ resident credit institutions as defined in EU law
+ other resident financial institutions whose business is
- to receive deposits and/or close substitutes for deposits from entities other than MFIs and,
- for their own account (at least in economic terms), to grant credits and/or make investments in securities (the latter group consists predominantly of money market funds)

16. Number of MFIs as at end-December 2010
2. The statistical framework of monetary analysis (2)
Number of MFIs as at end-December 2010
NCBs
Credit
institutions
Money Market Funds
Other MFIs
Total
Euro area
17+1
6334
1474 3
7828
Non participating EU Member States 10
1875
154 53
2093
EU Total 28
8209
1628 56
9921

17. 2. The statistical framework of monetary analysis (3)
Statistical requirements for MFIs
Type of data: end-period stocks and flow adjustments
Frequency: Monthly for main balance sheet series,
Quarterly for more detailed breakdowns
Timeliness: data reported by NCBs to ECB on
15th working day after end of reference month, and
28th working day after end of reference quarter
(NCBs decide on timeliness for national reporting)

18. 2. The statistical framework of monetary analysis (4)
Breakdowns collected for balance sheet items
Residency of counterpart (domestic / other euro area / RoW)
Counterpart sector (MFIs / Government / other financial institutions / insurance corporations and pension funds/ non-financial corporations / households)
Instrument category (under liabilities / assets)
Maturity bands (original maturity, i.e. at issue, or period of notice)
Currency (euro / other)

19. 2. The statistical framework of monetary analysis (5)
Why to collect these breakdowns?
Euro area monetary aggregates and counterparts
Euro area MFI’s lending to euro area money holding sector
Residency of counterpart. Our focus is on the euro area
Counterpart sectors. To separately identify:
(i) Money issuing sector = MFIs
(ii) Money holding sector = Government excl. Central Gov., other financial institutions, insurance corporations and pension funds, non-financial corporations, households
Instruments category. To identify M3 components and counterparts
Maturity bands. To identify short term (≤ 2 years) and
long term (>2 years) instruments

20. 2. The statistical framework of monetary analysis (6)
Separately identify money issuing and money holding sectors, for the purpose of deriving monetary aggregates

21. 2. The statistical framework of monetary analysis (7)
Decomposition of the annual growth rate of overnight deposits by sector
(annual flows, EUR bn)

22. Decomposition of the annual growth rate of M3 by sector
2. The statistical framework of monetary analysis (8)
Decomposition of the annual growth rate of M3 by sector
(percentage point contribution)

23. 2. The statistical framework of monetary analysis (9)

24. Decomposition of the annual growth rate of M3 by instrument
2. The statistical framework of monetary analysis (10)
Decomposition of the annual growth rate of M3 by instrument
(annual flows, EUR bn)

25. 2. The statistical framework of monetary analysis (11)
MFI loans to households
In addition to the breakdown by counterpart sector and original maturity (and currency)
Breakdown by purpose of the loan:
Consumer credit
Loans for house purchase
Other lending
 of which: loans to sole proprietors and unincorporated partnerships
Some new requirements are included in the BSI Regulation ECB/2008/32

26. 2. The statistical framework of monetary analysis (12)
Decomposition of the annual growth rate of loans to non-financial sectors
(annual flows, EUR bn)

27. Monetary aggregates and counterparts
2. The statistical framework of monetary analysis (13)
Compilation of euro area aggregates at the ECB
Central bank balance sheets of 16 euro area Member States
ECB’s own balance sheet
National aggregated balance sheets of other MFIs for each of the 16 euro area Member States
Aggregated balance sheet of the Eurosystem
Aggregated balance sheet of euro area other MFIs
On a gross basis
On a gross basis
Aggregated balance sheet of euro area MFIs
Central government deposit liabilities with a monetary character (e.g. post office accounts)
Netting of inter - MFI positions
Consolidated balance sheet of euro area MFI sector
Adjustment for non-euro area holdings of short-term debt securities issued by MFIs resident in DE, IE, NL
Monetary aggregates and counterparts

28. 2. The statistical framework of monetary analysis (14)
Definition of the euro area monetary aggregates M1 M2 M3
Currency in circulation x
Overnight deposits
Deposits with an agreed maturity of up to 2 years
Deposits redeemable at notice of up to 3 months
Repos
MMF Share/units
Debt securities with a maturity of up to 2 years
An all currency concept is being followed, i.e. instruments in foreign currency are included

29. 2. The statistical framework of monetary analysis (15)
Some alternative definitions of monetary aggregates
USA
M1 = currency + cheque deposits
M2 = M1 plus other deposits held by households
Euro area
M1 = Currency + overnight deposits
M2 = M1 + s-t deposits (2 years or redeemable in 3 months)
M3 = M2 + s-t securities issued by MFIs + money market mutual funds.
Japan
M1 = cash + demand deposits (commercial banks only)
M2 = M1 + time deposits + CDs (commercial banks only)
M3 = as for M2, but covering all deposit taking institutions
Thailand
M1 = Currency + on call deposits.
M2 = M1 + fixed and savings deposits
M3 = M2 + other funds from public e.g. promissory notes.

30. 2. The statistical framework of monetary analysis (16)
Assets:
Loans to euro area residents
Holdings of securities other than shares issued by euro area residents
Holdings of shares/other equity issued by other euro area residents
External assets
Fixed assets
Remaining assets
Liabilities:
Currency in circulation
Short-term deposits of other general government/ other euro area residents
Money market fund shares/units
Short term debt securities issued
Deposits of central government
Long-term debt securities
Long term deposits of other general government/ other euro area residents
Capital and reserves
External liabilities
Remaining liabilities
Excess of inter-MFI liabilities
M3 =
Credit + NEA – CGD – LTFL + OA

31. 2. The statistical framework of monetary analysis (17)
M3 and counterparts
(annual flows, EUR bn)

32. 2. The statistical framework of monetary analysis (18)
Stocks, flows, indices and growth rates
Stock data refer to the last (working or calendar) day of the period (month or quarter)
Flows for period t calculated as difference between stock at end of period t and stock at the end of period t-1, adjusted for effects that do not arise from transactions
Index of adjusted stocks derived from flows and used to calculate growth rates
Growth rate over the n months ending in month t calculated by dividing the index for month t by the index for month t - n

33. 2. The statistical framework of monetary analysis (19)
Derivation of flows (transactions) by the ECB
Flow at time t for any balance sheet item is given by:
Ft = Flow
Lt = Level at end of the period t
Lt-1 = Level at end of the period (t-1)
Ct = Reclassification adjustment (reported by NCBs)
Vt = Revaluation adjustment (reported by “other MFI”)
Et = Exchange rate adjustment (calculated by ECB)
Ct , Vt , Et are "non-transactions-related" factors

34. 2. The statistical framework of monetary analysis (20)
Seasonal adjustment
M3 components and counterparts, as included in press release, are seasonally adjusted
Seasonal adjustment by the ECB also includes trading-day adjustment as underlying series are end-of-month stocks
Method is X-12-ARIMA (U.S. Bureau of Census); for internal purposes, TRAMO-SEATS (A. Maravall – Bank of Spain) is also used

35. Contents 0. ESCB statistics
Aim and scope of Monetary Financial Institutions (MFIs) balance sheet statistics
The statistical framework of monetary analysis
Coping with financial innovation:
Securitisation
Central counterparties

36. 3. Coping with financial innovation (1)
(Traditional) securitisation:
An originator (e.g. a bank) pools a set of assets and sells them to a financial vehicle corporation (FVC)
The FVC issues asset-backed securities (ABS) to investors, the principal and interest of which depend on the cash flows produced by the asset pool
The ABS are typically issued in different tranches of seniority (priority in payment/loss absorption)
The FVC is usually set-up as a bankruptcy remote entity (the pool of assets is beyond the reach of the originator’s creditors)

37. 3. Coping with financial innovation (2)
Motives for securitisation:
Financing especially during phases of large credit expansion (rates usually lower than other sources)
Risk diversification for both originators and investors
Conversion of illiquid assets into marketable securities that can be used in the repo market (including refinancing with the Eurosystem)
Regulatory capital relief and/or capital arbitrage
Flexibility in creating investment products for a wider investor base (e.g. tranching)  enhanced revenues (arbitrage, fees, etc.)
Moving of business to lighter regulated or unregulated entities (e.g. ABCP conduits)

38. 3. Coping with financial innovation (3)
(Among other needs) data on securitisation are needed to get reliable interpretation of MFI credit data:
need to correct for negative financial transactions when loans are securitised and derecognised from the MFI balance sheet!
Table 2.3 of the ECB Monthly Bulletin 

39. 3. Coping with financial innovation (4)

40. 3. Coping with financial innovation (5)
Previous data was insufficient:
non-harmonised definitions and compilation approaches
different availability and coverage among Member States
no sectoral detail available (NFC, household etc.)
New statistical Regulation (ECB/2008/30) to address these limitations (among others)
 publication of new statistics from June 2011

41. Bank A  repo  CCP  inverse repo  Bank B
3. Coping with financial innovation (6)
Central counterparties (CCPs):
Financial institutions acting as intermediaries between financial and money market participants – reduce counterparty risk
More and more active on the (secured) interbank market:
Bank A  repo  Bank B
vs.
Bank A  repo  CCP  inverse repo  Bank B

42. 3. Coping with financial innovation (7)
Impact on M3 and credit:
CCPs are part of the money-holding sector; therefore:
M3 is artificially inflated (repos are part of M3)
Credit is artificially inflated (the MFI in the reverse repo records a loan to an OFI)

43. 3. Coping with financial innovation (8)
New requirements under Regulation ECB/2008/32 cope with this problem:

44. References
Regulation (EC) No 25/2009 of the ECB of 19 December 2008 concerning the balance sheet of the monetary financial institutions sector (Recast) (ECB/2008/32):
Guideline of the ECB of 1 August 2007 on monetary, financial institutions and markets statistics (recast)  (ECB/2007/9) and amendments:
Regulation (EC) No 24/2009 of the ECB of 19 December 2008 concerning statistics on the assets and liabilities of financial vehicle corporations engaged in securitisation transactions (ECB/2008/30):

45. Working for the ECB
Various job opportunities are available on the ECB website at:
The ECB Statistics Traineeship Programme is dedicated to traineeships opportunity at the Directorate General Statistics of the ECB; see:

46. Further information available on www.ecb.europa.eu