1 Robert W. Edwards Director Statistics Department International Monetary Fund OECD World Forum on Statistics, Knowledge, and Policy Istanbul, June 27-30, 2007 Policy and Statistical Issues Underpinning Financial Stability: The IMF Perspective

2 Financial Stability in Global World  Unprecedented deepening in financial markets  Internationalization of financial institutions  National economies part of vast network of closely interconnected balance sheets, with potential for severe spillover effects

3 Financial Stability Implications  For individual institutions, globalization helps diversify risks and may have improved financial stability, particularly in face of relatively small shocks  At the systemic level, severe crises may be more broad-ranging and difficult to deal with due to spillovers  Financial instability in one country may be transmitted to other countries or affect developments in regional or global markets

4 Containing Potential Risks  Need to reduce likelihood of systemic crises and limit their severity if they occur: Effective monetary policy Sound fiscal stance Deep, broad, and resilient financial systems  Coordinated oversight of cross-border financial institutions  Cross-border crisis management and resolution arrangements

5 Role of the IMF  Through universal reach and expertise on macroeconomic and financial issues and on statistics: Enhance monitoring of global economy Help individual countries strengthen resilience of their economies Help provide timely, comprehensive, and internationally comparable data

6 New Directions in Financial Surveillance  No single widely-accepted methodology for assessing financial sector stability  Two key questions: What are key interactions between macro- economy, financial markets, and financial institutions? What is role of financial sector in initiating, transmitting, or amplifying disturbances in the economy?

7 IMF Financial Surveillance Framework  Continued emphasis on the Financial Sector Assessment Program (FSAP) Designed to assess stability of system as a whole 120 initial assessments and 27 updates (June 2007)  Greater financial coverage in Article IV consultations Ensuring continuity between FSAP assessments Integrating financial analysis into traditional macro- economic analysis.  More global perspective Integrating multilateral and regional issues Regional FSAPs

FSAP Participation (as of May 2007)

9 Analytical Tools  Use of indicators in surveillance Financial Soundness Indicators (FSIs) of banks and their clients are a key tool of surveillance Forward-looking tools such as stress tests and market-based indicators support analysis of FSIs  The Balance Sheet Approach (BSA) Based on stocks of assets and liabilities of economic sectors Examine determinants and evolution of these stocks and how they can trigger flow adjustments (capital inflows, holdings of foreign currency assets)

10 Statistical Initiatives  Collecting and presenting high quality statistical data to support analytical work needed for surveillance: Intensification of cross-border financial flows and positions with spillover effects Lack of good-quality cross-country comparable financial soundness indicators Balance sheet nature of major recent crises

11 Cross-Border Financial Flow Data  External Sector Data International Investment Position (IIP) Coordinated Portfolio Investment Survey (CPIS) Coordinated Direct Investment Survey (CDIS) (planned) Data Template on International Reserves and Foreign Currency Liquidity (Reserve Template) Currency Composition of Official Foreign Exchange Reserves (COFER) Joint External Debt Hub (JEDH)

12 Financial Soundness Indicators  To encourage compilation of internationally comparable FSIs: Compilation Guide: Financial Soundness Indicators (12 core and 27 encouraged FSIs) Coordinated Compilation Exercise  62 participating countries  End-2005 FSI data and metadata posted on IMF website for 57 countries

13 Meeting data needs of BSA  Intensive data framework requiring stock data, currency denomination, and maturities of sectoral assets and liabilities Standardized Report Forms (SRFs) introduced in 2005 SRF data provide most of the information needed for BSA About 80 countries report SRF data to IMF Other data sources: CPIS, IIP, and JEDH

14 Much Work Remains to be Done  Policy and analytical front Provide key insights about financial risks and vulnerabilities More attention to macro-linkages Better use of available data Strengthen focus on spillovers and cross-country links  Statistical front Wider production and reporting of timely data to shed light on global financial flows Greater coverage of data essential for BSA Regular collection of FSIs and expansion of indicators to include FSIs for non-banks