1 Securitisation and the Euro Area Accounts The 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 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 Overview

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 in MFI 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? Loans to the private non-financial sectors Quarterly transactions (EUR bn)

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) Initial imbalances for debt securities Short-term debt securitiesLong-term debt securities 1999Q1-2006Q Q1-2009Q33938

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?