Broadening Financial Indicators in the Special Data Dissemination StandardPublic Information Notice (PIN) No. 10/41
March 23, 2010
Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.
On March 12, 2010, the Executive Board of the International Monetary Fund (IMF) discussed the staff report regarding Broadening Financial Indicators in the Special Data Dissemination Standard.
As a response to requests by the International Monetary and Financial Committee (IMFC), building on work for the Group of 20 (G-20) to examine data gaps that came to light as a result of the global financial crisis, and to provide appropriate measures to strengthen financial data collection, the Executive Board of the IMF endorsed proposals to broaden the scope of the IMF’s Special Data Dissemination Standard (SDDS) on March 12, 2010.
The SDDS was established in 1996 to guide members in the provision of economic and financial data and the dissemination of timely and comprehensive statistics in pursuit of sound macroeconomic policies and financial sector stability. The SDDS now has 67 subscribers. As such, it is a core global reporting framework on which to base national and international efforts to address new data gaps and to strengthen reporting going forward. The Executive Board took note of the global financial crisis and its implications for the SDDS during its discussion of the Seventh Review of the Fund’s Data Standards Initiatives (see http://www.imf.org/external/np/sec/pn/2008/pn08147.htm or http://www.imf.org/external/np/pp/eng/2008/111908.pdf) in December 2008. Thus, Directors requested staff to return in a year with a proposal to include selected financial indicators in the SDDS. In their view, data gaps should be addressed on an ongoing basis to help prevent the recurrence of similar crises in the future.
The IMF, in close collaboration with the Financial Stability Board (FSB), has identified data gaps that masked key financial sector vulnerabilities in the run-up to the recent financial crisis. These gaps include insufficient data on (1) credit, liquidity, leverage, and solvency risks facing financial systems; (2) cross-border exposures; and (3) vulnerabilities facing domestic sectors and markets.
Following extensive work by the Fund’s Statistics Department, the Executive Board agreed in a discussion on March 12 to start addressing data gaps in the context of the SDDS by:
• including seven financial soundness indicators (FSIs) into the SDDS on an “encouraged” basis (that is, not legally “prescribed” under the SDDS)―to strengthen information about the financial sector and better detect system risks;
• moving to quarterly reporting (from annual) of the international investment position (IIP) data, with a maximum lag of one quarter (quarterly timeliness), on a “prescribed” basis―in order to better understand cross-border linkages;
• adding a simplified table on countries’ external debt by remaining maturity (on an “encouraged” basis)―to better monitor the vulnerability of domestic economies to shocks; and
• accelerating the timing of the IMF’s Eighth Review of the Data Standards Initiatives to within 24 months―at least a year and a half earlier than previously anticipated.
The seven FSIs to be included are:
i) Regulatory Tier 1 capital to risk-weighted assets
ii) Regulatory Tier 1 capital to assets
iii) Nonperforming loans net of provisions to capital
iv) Nonperforming loans to total gross loans
v) Return on assets
vi) Liquid assets to short-term liabilities
vii) Net open position in foreign exchange to capital
These modifications to the SDDS, agreed by Executive Directors, are aimed to strengthen the international financial system by filling data gaps through improved dissemination. Moreover, in combination with the General Data Dissemination System (GDDS) that was more closely aligned with the SDDS following the Seventh Review, these modifications bring the work on financial data to the wider Fund membership.
Background: The SDDS as promoter of transparency
In the wake of the financial crises in the 1990s, there was broad consensus on the need for specific steps to increase the availability of comprehensive, timely, and high frequency data. In 1996, the SDDS was established to provide guidance on disseminating data to the public for member countries with access to, or preparing for access to capital markets. In 1997, the GDDS was established as a developmental framework for other national statistical systems to meet evolving requirements of the user community.
The SDDS was designed to evolve over time to address new data needs. There have been major enhancements to the SDDS but the 2008/09 financial crisis has highlighted the need to review the financial indicators included in the SDDS. Indeed, the international community has identified the availability of timely and more detailed financial data as a key factor that could provide early warning signals of impending risks and vulnerabilities to prevent future crises.
Executive Board Assessment
Executive Directors welcomed the opportunity to follow-up to the December 2008 data standards review with proposals to broaden financial indicators in the Special Data Dissemination Standard (SDDS) as a way to begin to address the information gaps highlighted by the global financial crisis. The crisis has shown that, along with other needed actions, greater availability of financial data is important for effective surveillance and supervision to help detect risks and vulnerabilities. Directors noted the evolving nature of the SDDS as a core flexible reporting framework for national and international efforts to address new data gaps and strengthen transparency. Going forward, continued close consultation with national authorities, additional technical assistance, and collaboration with relevant international partners will be important to ensure the successful strengthening of data initiatives in a cost-effective and well-coordinated manner.
Directors supported the incorporation of the seven financial soundness indicators (FSIs) on an encouraged basis, while noting the additional reporting burden on the membership. Recognizing the insufficient international comparability of many FSIs, they encouraged the staff to continue to work closely with national authorities and other international partners, as appropriate, to improve measurement consistency across countries, with the provision of necessary technical assistance that does not divert resources from other technical assistance priorities. Some Directors suggested that some flexibility be considered regarding the frequency of the provision of data.
Most Directors agreed to modify the SDDS to prescribe, with a four year transition period, International Investment Position (IIP) data with quarterly periodicity and timeliness to improve their usefulness for surveillance. They underscored the importance of linking the timely, existing quarterly balance of payments data to quarterly IIP data to obtain a full picture of external vulnerabilities. However, a number of Directors would have preferred this to remain on an encouraged basis, given the costs associated with the collection of IIP data on a quarterly basis, which would be subject to frequent revisions and would therefore need to be treated with appropriate care. These Directors were concerned that prescribing IIP data with quarterly periodicity and timeliness could create difficulties for some existing SDDS subscribers and discourage potential subscribers.
Directors noted that the recent crisis has highlighted the need for more information on external liquidity. They broadly supported the proposal to incorporate a new table on external debt on a remaining maturity basis to encourage dissemination of data on principal and interest payments due in one year or less with quarterly timeliness. Directors concurred that this change should be introduced on an encouraged basis, given the implementation challenges and the need to modify data collection systems in many countries. A few Directors questioned the statistical treatment of SDR allocations as long-term debt liabilities.
Directors looked forward to considering the updating of the legal text of the SDDS to reflect recent modifications, recognizing that sufficient time and flexibility will need to be extended to member countries to allow for implementation.
While some Directors would have preferred maintaining the current five-year review cycle, most Directors agreed that the eighth review of the Fund’s data initiatives should take place within two years, with an interim briefing in about a year. Directors noted that the preliminary work program put forward by the staff is ambitious and will require broad consultation with national authorities and other relevant stakeholders. They noted that sufficient priority should continue to be given to improving data quality. Careful attention will also need to be paid to the resource implications for the Fund and member countries. Many Directors indicated that proposals could go beyond enhancing the SDDS, including exploring the feasibility of establishing a financial data dissemination standard, to accommodate information on systemically-important financial sectors. Several Directors highlighted the importance of using standardized data within the Fund as well as efforts to consolidate and streamline the collection, production, and dissemination of statistics by the Fund.