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IMF Works to Plug Data Gaps Exposed by Crisis

Headquarters of world’s largest reinsurer Swiss Re: crisis highlights need for more information on nonbank financial institutions (photo: Sebastien Bozon/AFP)

Statistics Conference

IMF Works to Plug Data Gaps Exposed by Crisis

By Natalie Ramirez-Djumena
IMF Survey online

July 29, 2009

  • Accurate, complete, timely data critical for assessing risks and vulnerabilities
  • Conference addresses key information gaps and priorities for filling them
  • Efforts should focus on indicators with greater early warning content

The IMF and the Financial Stability Board (FSB) are working together to help identify the information gaps exposed by the global economic crisis and to come up with appropriate responses.

The two institutions convened a two-day conference to discuss ways to plug the gaps with officials from central banks and ministries of finance.

The July 8–9 event was in response to the communiqué of the Group of Twenty (G-20) leading industrial and emerging market economies. The G-20 asked the IMF and the FSB to offer recommendations in time for the next meeting of G-20 Finance Ministers and Central Bank Governors in November in Scotland. This request was endorsed by the IMF’s International Monetary and Financial Committee at its Spring Meetings in April 2009.

Besides this conference, which will form the basis of the IMF/FSB submission to the G-20, the IMF has already launched a number of initiatives in this area. The IMF has recently established the Interagency Group on Economic and Financial Statistics involving the Bank for International Settlements, the European Central Bank, Eurostat, the Organisation for Economic Co-operation and Development, the United Nations, and the World Bank. In April, the group launched the Principal Global Indicators website—a public online website that displays data for G-20 countries.

Filling the gaps

Conference participants noted that the crisis has revealed significant shortcomings in the data and information available to assess and deal with systemic risk. At the same time, however, participants recognized that filling these gaps would be costly and therefore it would be important to build on existing reporting frameworks and coordinate efforts both nationally and internationally to avoid duplication and waste. There was also a need to strengthen the analytical and conceptual frameworks for assessing financial system stability.

Participants identified a number of priorities to help fill information gaps.

• Monitor the exposures and activities of systemically important financial institutions at the global level.

• Review and broaden the coverage of Financial Soundness Indicators, with a particular emphasis on those indicators that were useful for financial stability analysis (see box).

• Capture data on the shadow banking sector—broadly defined as financial intermediation by institutions, markets, and products outside of the banking sector and traditional securities markets.

• Improve the information available on the vulnerabilities of the nonfinancial corporate sector and households, starting with flow-of-funds and balance sheet data.

• Enhance the data available on cross-border financial flows, so-called from-whom-to-whom databases, as well as external debt statistics to enable better monitoring of exposures of domestic entities to foreign shocks.

• Give more emphasis to indicators of financial system tail risk, to data that is more granular, and to information on the distribution of risk within markets and across institutions, since these over time may contain important signs of emerging vulnerabilities.

• Improve data on residential and commercial real estate.

• Collect data on the nature of the assets underlying securitized products and on the risk exposures arising from credit risk transfer instruments, such as credit default swaps.

Financial soundness indicators (FSIs)

The IMF will be launching a database containing an initial set of FSIs for about 40 countries on July 31. Participating countries are expected to report at least the 12 core FSIs for deposit takers and all, or some of, the 28 encouraged FSIs (covering deposit takers and other sectors/markets). Countries may choose to report a given FSI monthly, quarterly, semiannually, or annually. The data will be complemented by metadata (descriptions of data)—particularly important given the divergence in national practices. The IMF will aim to add about 10 countries per year to the list of reporting countries. For more information on this project, see the presentation by Charles Enoch on the conference website.

Assessing the soundness of the financial sector

Alfredo Leone, Deputy Director of the IMF’s Statistics Department, introduced the first session on the main data issues arising from the crisis by noting that while the financial crisis was not the result of a lack of proper economic and financial statistics, it had highlighted certain data gaps, particularly regarding data for financial stability analysis. Christopher Towe, Deputy Director of the IMF’s Monetary and Capital Markets Department, summarized the findings of a recent IMF Staff Position Note, “Addressing Information Gaps.” He stressed a number of complementary recommendations that would have an important beneficial role in filling the information gaps, such as enhancing the tool set for system-wide assessments and improving the transparency and coverage of information regarding over-the-counter derivatives.

Viñals: there are much larger gaps in the data and information needed to assess financial stability (IMF photo)

In his speech, José Viñals, Director of the IMF’s Monetary and Capital Markets Department, told conference participants that “those of us that worry about financial stability have four problems that monetary policymakers do not have.” First, the definition of financial stability is not as well established as price stability. Second, the analytical models and other tools for assessing linkages between prudential policies and financial stability are not as well developed as the models used for monetary policy. Third, the tools available for assessing the soundness of the financial sector are not as well developed as those that are available to central banks for gauging inflation pressures. Finally, there are much larger gaps in the data and information needed to assess financial stability. Viñals argued that the work on plugging information gaps would need to focus on each of these areas to achieve measurable success.

Information gaps played key role in crisis

For markets, policymakers, and financial sector authorities, appropriate coverage and quality of information is critical to their capacity to assess risks and vulnerabilities, including by way of early warning exercises. “The crisis has shown that we were far from that ideal and many studies have confirmed that information gaps played an important role in our collective failures to identify fully the buildup of risks,” said John Lipsky, IMF First Deputy Managing Director, in his opening remarks.

Murilo Portugal, IMF Deputy Managing Director, added that “the crisis has reaffirmed an old lesson—good data, good analyses, and effective policy responses are the lifeblood of surveillance both at national and international levels.”

Portugal, in his luncheon address, highlighted three themes that imply important lessons for the international community.

• The need to better monitor interconnections—across borders, across economic sectors, and among individual institutions.

• The importance of better aligning the needs for, and the collection of, micro and macrofinancial data.

• The need for a better analytical framework for financial stability and macroprudential analysis.

Communication of official statistics

Recent events have caused statisticians to look at their current practices and consider whether official statistics are adequately communicated, said Adelheid Burgi-Schmelz, Director of the IMF’s Statistics Department.

Burgi-Schmelz talked about the importance of communicating official statistics (IMF photo)

In a world of user-friendly information, Burgi-Schmelz pointed out that it is becoming increasingly evident that data need to be made accessible, timely, and presented in an attractive manner, such as through charts and other visual displays. Many private suppliers of data have adapted to these demands by making their databases attractive to users. In contrast, important data were available from official suppliers but were not known about by users and data may not always have been made available quickly enough for users.

Burgi-Schmelz said that improving the communication of data has been one of the main challenges her department has been tackling since last October. She stressed the need to go beyond traditional statistical approaches to make available more timely and higher-frequency real and financial indicators.

A short summary of the key points made at the conference, together with the presentations and papers, is available here.

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