1. The Global Financial Crisis: What Are We Learning About Policy-Makers’ Data Needs?
Tessa van der Willigen and Pedro Rodriguez
Strategy, Policy, and Review Department
IMF

2. Outline What happened Short-term actions
Better early warning in future
Data needs
Disclaimer: I may stray outside SNA proper, but balance sheets are key...

3. What Happened? Background
Macroeconomic conditions:
Low global interest rates, reflecting large external surpluses in key emerging markets and easy monetary policy
Very large increases in asset prices
Financial sector regulation:
Rapid growth in “subprime” mortgages in US
Repackaging into traded structured products

4. What Happened? The Crisis
Correction in the US housing market
Fall in, and increased uncertainty in, the price of structured products
Financial institutions:
made losses and sold assets
began to hoard liquidity because of increased uncertainty (about values and counterparties)
reacted sharply to the collapse of Lehman Brothers

5. What Happened? International Linkages
Origins of the crisis in the US
Spillovers to Europe because of direct exposures and declines in wholesale funding
Emerging markets hit after the collapse of Lehman:
The “decoupling” hypothesis was probably always optimistic
Accelerated deleveraging

6. Getting the Crisis Under Control--I
Restoring confidence in mature financial systems:
Providing short-term liquidity
Removing damaged assets from banks’ balance sheets
Recapitalizing banks

7. Getting the Crisis Under Control--II
Dealing with capital flow reversals in emerging markets:
Use reserve buffers
Liquidity support (swap lines with major central banks, the IMF’s new Short-Term Liquidity Facility)
Adjust as necessary
Review contingency plans in case of banking sector problems

8. Getting the Crisis Under Control--III
Addressing the fiscal consequences of intervention in the financial system
Ensure debt sustainability
Develop an exit strategy

9. Better Early Warning in Future--I
Better financial stability analysis:
Risks were moved to off-balance sheet vehicles
Risks moved to a burgeoning superstructure of complex marketable products and derivatives and became untraceable

10. Better Early Warning in Future--II
Better macroeconomic analysis:
Need better identification of asset price bubbles
Need a better understanding of how concerned we should be about external imbalances
(e.g., the discrepancies between the development of US foreign assets and its current account)

11. Better Early Warning in Future--III
International financial linkages:
We had far too little idea of countries’ exposures to other countries, different kinds of institutions, and different kinds of instruments

12. Data Needs—Fiscal Accurate and transparent recording of
the fiscal costs of intervention in the banking sector and implications for public debt
contingent liabilities

13. Data Needs—Financial Sector
A big agenda for regulators
Related, we also need better aggregate financial stability analysis
Considerable efforts in recent years:
Balance sheet analysis
(the IMF’s Standardized Report Forms for Monetary and Financial Statistics cover banks, non-bank depository corporations, insurance companies, pension funds, investment funds, special purpose entities, etc.)
Financial Soundness Indicators
(Coordinated Compilation Exercise; though these are lagging indicators)

14. Data Needs—Financial Sector, Ctd.
Importance of information on:
Off balance sheet entities
Contingent exposures (derivatives)
Maturity of liabilities and assets
Intrasectoral exposures/market structures
Valuation

15. Data Needs—External Sector
We need:
better analysis of the buildup of external vulnerabilities; and
better analysis of the potential for international spillovers through the financial sector.
Again, considerable efforts in recent years:
initiatives on debt and reserves data after the Asian crisis
Balance of Payments Manual 6th edition, with more emphasis on the International Investment Position (IIP) and its composition (e.g., maturity, currency)
Coordinated Portfolio Investment Survey
Coordinated Direct Investment Survey (forthcoming)

16. Data Needs—External Sector, Ctd
IIP:
Sectoral composition
Geographical composition
Currency composition (incl. of reserves)
Expand CPIS (key countries not covered, annual frequency, long lags)
Valuation issues, esp. of FDI

17. Conclusion Some themes that may be relevant for SNA:
Balance sheets are indeed crucial
We need not just their amounts but their sensitivities to various developments (for stress testing)
Off balance sheet and contingent exposures are crucial
Aggregation can mask important features
Valuation issues are very difficult