## _022210a

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---

### Executive summary — context and rationale
- December 2008: IMF Executive Board requested staff to return within about a year with a proposal for inclusion of selected financial indicators in the SDDS.
- Consultations and milestone inputs:
  - March 2009: G-20 Working Group #2 recommended Fund and FSB explore data gaps.
  - April 2009: IMFC endorsed the G-20 mandate.
  - July 2009: IMF and FSB Users’ Conference on the Financial Crisis and Information Gaps.
  - November 2009: Users’ Conference outcomes informed the G-20 report.
- Rationale:
  - The global financial crisis revealed insufficient timely, detailed financial data for early warning on credit, liquidity, leverage, and solvency risks, and for cross-border positions.
  - Identified needs: macro-prudential indicators (FSIs), strengthened external debt data, and higher frequency IIP data.
- SDDS role:
  - SDDS is a dynamic benchmark; prior enhancements (Reserves Template, external debt statistics, IIP prescriptions) demonstrate its use to promote transparency.
  - Enhancing the SDDS with FSIs and external sector data can encourage broader dissemination of financial data across Fund membership.

### Staff proposal — package and timing
- Proposed package to address identified gaps:
  - Include seven Financial Soundness Indicators (FSIs) into the SDDS on an encouraged basis.
  - Incorporate International Investment Position (IIP) data with quarterly periodicity and quarterly timeliness as an SDDS prescription, with a four year transition period.
  - Add a simplified table on external debt by remaining maturity on an encouraged basis (principal and interest payments due in one year or less, by sector).
  - Accelerate the Eighth Review of the Data Standards Initiatives to 18–24 months from the date of the Board discussion.

### Expected benefits and implementation approach
- Benefits:
  - Provide timely, high-frequency data to help market participants and policymakers assess conditions and differentiate performance across economies.
  - Improve understanding of valuation effects, external liabilities in context of assets, detection of leverage buildup, and country interconnections.
- Implementation approach:
  - Leverage existing reporting frameworks and coordinate nationally and internationally due to potential costs of filling data gaps.
  - For FSIs and external debt remaining maturity table, propose initial inclusion on an encouraged basis (no transition period).
  - For quarterly IIP prescription, apply a four year transition period to allow development of data collection and compilation tools.
  - STA to give priority to providing technical assistance to help subscribers meet requirements.

### Forward-looking work areas for the Eighth Review
- Topics to be considered in an accelerated Eighth Review (within 18–24 months):
  - Sectoral balance sheets and promotion of balance sheet approach outputs.
  - Enhancements to the Coordinated Portfolio Investment Survey (CPIS).
  - Re-evaluation and possible revision of the FSI list, frequency, and market-based FSIs.
  - Possible addition of new FSIs for deposit takers, other financial corporations, nonfinancial corporations, households, and real estate markets.
  - Consideration of whether FSIs remain in SDDS or a new Financial Data Dissemination Standard is needed.

---

### Proposed Financial Soundness Indicators (FSIs) — staff selection and coverage
- Selection criteria:
  - Analytical usefulness across capital adequacy, asset quality, profitability, credit risk, liquidity risk, and market risk.
  - Usefulness supported by IMF Staff Position Note, Users’ Conference, consultations with subscribers and capital market participants.
  - Feasibility without excessive burden; parsimony and synergies with GFSR demands.
  - Fund’s comparative advantage in collecting data not readily available from commercial sources.
- Staff reviewed existing 40 FSIs and proposed seven FSIs for inclusion in the SDDS on an encouraged basis; compiled for the deposit-taking sector as a whole to capture capital adequacy, earnings/profitability, asset quality, liquidity, and sensitivity to market risk.

- Table of seven proposed FSIs (reporting counts and periodicity)
  - Indicator 1: Regulatory Tier 1 capital to risk-weighted assets — G-20: 15; Non G-20: 34; Total: 49; Periodicity: M: 2; Q: 23; SA: 8; A: 21; Type: CA
  - Indicator 2: Regulatory Tier 1 capital to assets — G-20: 12; Non G-20: 28; Total: 40; Periodicity: M: 2; Q: 20; SA: 8; A: 15; Type: CA
  - Indicator 3: Nonperforming loans net of provisions to capital — G-20: 15; Non G-20: 31; Total: 46; Periodicity: M: 1; Q: 22; SA: 8; A: 20; Type: CA
  - Indicator 4: Nonperforming loans to total gross loans — G-20: 15; Non G-20: 32; Total: 47; Periodicity: M: 2; Q: 22; SA: 8; A: 20; Type: CR
  - Indicator 5: Return on assets — G-20: 15; Non G-20: 34; Total: 49; Periodicity: M: 2; Q: 22; SA: 7; A: 22; Type: P
  - Indicator 6: Liquid assets to short-term liabilities — G-20: 14; Non G-20: 31; Total: 45; Periodicity: M: 2; Q: 23; SA: 7; A: 18; Type: LR
  - Indicator 7: Net open position in foreign exchange to capital — G-20: 10; Non G-20: 29; Total: 39; Periodicity: M: 2; Q: 18; SA: 7; A: 17; Type: MR
  - Periodicity codes: M - Monthly, Q - Quarterly, SA - Semiannual, A – Annual.
  - Type codes: CA - Capital adequacy, CR - Credit risk, P - Profitability, LR - Liquidity risk, MR - Market risk.
  - Note: Indicator 2 is closely related to indicator 13 (capital to assets) of the agreed list of 40 FSIs; countries may use regulatory Tier 1 capital or broader capital definitions.

### Rationale for each proposed FSI
- Capital adequacy:
  - Regulatory Tier 1 capital to risk-weighted assets: measures capital adequacy based on BCBS core capital; useful for cross-country comparability.
  - Tier 1 capital to assets: measures leverage and complements risk-weighted ratios; provides a homogenous indicator.
  - Nonperforming loans net of provisions to capital: indicates capacity of capital to withstand NPL-related losses and provisioning adequacy.
- Asset quality, profitability, liquidity, and market risk:
  - Nonperforming loans to total gross loans: proxy for asset quality.
  - Return on assets: indicator of efficiency and bank profitability; informs sustainability of capital over time.
  - Liquid assets to short-term liabilities: indicates liquidity available for short-term cash demands and maturity mismatches.
  - Net open position in foreign exchange to capital: identifies exchange rate risk exposure relative to capital.

### Availability, reporting status, and gaps (FSIs)
- Data availability:
  - Data for the seven proposed FSIs are available for 49 of the 67 current SDDS subscribers posted on the FSI website (http://fsi.imf.org/).
  - About 70 percent of subscribers already compile and disseminate these FSIs.
  - At least another four subscribers have indicated willingness and capacity to report these FSIs.
- Reporting gaps among the 49 reporters (as of January 2010):
  - nine subscribers do not report data on regulatory tier 1 capital to assets;
  - three subscribers do not report data on nonperforming loans net of provisions to capital;
  - two subscribers do not report data on nonperforming loans to total gross loans;
  - four subscribers do not report data on liquid assets to short-term liabilities;
  - ten subscribers do not report data on net open position in foreign exchange to capital.
  - Note: regulatory Tier 1 capital to assets ratio can be calculated from underlying data reported by most subscribers.
- Periodicity and timeliness:
  - 25 of these 49 subscribers do not yet disseminate quarterly data.
  - FSI website launched in July 2009; as of January 2010 it is too early to evaluate timeliness, but reporting subscribers have made efforts to improve periodicity and timeliness.

### Implementation and metadata
- Proposal specifics:
  - Include seven FSIs in the SDDS initially on an encouraged basis.
  - Encourage quarterly periodicity and timeliness for these FSIs.
  - Encourage application of the Fund’s amended FSI Guide methodology in compiling indicators.
  - Require subscribers to cite internationally accepted statistical methodology and report material deviations in metadata, consistent with other SDDS data categories.
  - As an encouraged category, no transition period would be needed.
- Implementation considerations:
  - CCE revealed diverse methodologies across countries; associated metadata will be required to document methodologies and assess cross-country comparability.
  - Creation of a centralized public FSI database is valued to enhance availability, comparability, and reduce reporting burden.
  - Complement FSIs with higher-frequency market-based data to provide more forward-looking information.

---

### External sector statistics — quarterly IIP and external debt remaining maturity

- Quarterly IIP — problem and staff proposal
  - Problem:
    - Annual IIP data with three quarters timeliness meet current SDDS requirements but are too dated for effective surveillance and linkage with quarterly balance of payments flows.
    - Price changes (valuation adjustments) affecting outstanding positions are not captured by transactions and require timely IIP data.
  - Current reporting status (as of November 2009):
    - 37 SDDS subscribers (55 percent) report quarterly IIP data (with quarterly timeliness) through their NSDPs.
    - Another seven do so, but with a lag greater than one quarter.
    - Two disseminate the data semi-annually.
    - 12 disseminate annual data with a delay of six months.
    - The rest meet SDDS requirements of annual periodicity and timeliness of three quarters.
  - Staff proposal:
    - Modify the SDDS to prescribe the IIP with quarterly periodicity and quarterly timeliness.
    - Apply a four year transition period for remaining subscribers to develop necessary tools.

- External debt by remaining maturity — rationale and staff proposal
  - Rationale:
    - Crisis highlighted need for information on external liquidity, roll-over and liquidity risk, and short-term debt falling due.
  - Data gap and suggested construct:
    - Remaining maturity short-term external debt = outstanding short-term external debt (original maturity) + long-term external debt (original maturity) due to be paid in one year or less (requires new data collection for many countries).
  - Minimum recommended detail (sectoral breakdown):
    - Principal and Interest Payments Due in One Year or Less (in millions of currency units) by sector: General government; Monetary authorities; Banks; Other sectors; Direct investment-Intercompany lending; Total (Principal; Interest).
  - Staff proposal:
    - Modify the SDDS under the quarterly external debt category to encourage dissemination of principal and interest payments due in one year or less with quarterly timeliness.
    - As an encouraged category, no transition period would be needed to incorporate Table 3.
    - Staff would redouble efforts to encourage subscribers to provide the external debt service profile.

---

### Developments since the Seventh Review and methodological updates
- Reserves Template and SDR allocations:
  - May 2008: Board agreed to modify the Reserves Template to capture exchange-traded futures exposures (including exposures settled in domestic currency); modifications took effect in August 2009 with data reported pertaining to July 2009.
  - Reporting of financial derivatives in the Reserves Template became consistent with the May 2008 amendment to Annex A, Article VIII, Section 5 of the IMF Articles of Agreement.
  - All SDDS subscribing countries are now required to use the new form and report information on exchange-traded futures, if they undertake these transactions.
- BPM6 and SDR treatment:
  - Under BPM6, new allocations of SDRs are recorded as increases in gross reserve assets and increases in long-term liabilities.
  - Specific allocations:
    - A general allocation of SDR 161.2 billion was implemented on August 28, 2009, and a special one-time allocation of SDR 21.5 billion took effect on September 9, 2009.
    - These correspond to an allocation of about $250 billion in August and $33 billion in September 2009.
  - Under BPM6, gross external debt should include a debt liability for all SDR allocations.
  - STA is working with the World Bank and others to align QEDS and JEDH data with BPM6; changes reflected beginning with the Q3 2009 data release of January 2010 in the QEDS.
- Metadata certification and methodology citations:
  - SDDS legal text amended to require explicit citations to internationally accepted statistical methodologies and disclosure of deviations in metadata.
  - First annual metadata certification for 2009 was due by January 31, 2010; results to be recorded in Annual Observance Reports for 2009 published on the DSBB by end-May 2010.
  - Staff communicated desk study results in October monthly observance reports and requested subscribers to update metadata by end-2009; progress is monitored monthly.

- Data quality assessments and GDDS alignment:
  - Directors agreed SDDS subscribers be encouraged to conduct and publish a data quality assessment at least once every 7–10 years (Data ROSC or comparable assessment).
  - Staff wrote to subscribers lacking recent assessments; roughly half requested a new Data ROSC in FY2010 or 2011; a few have not responded and one declined.
  - GDDS legal text updated in July 2009 to align more closely with SDDS; projects initiated to convert GDDS metadata to be more in line with SDDS using the DQAF and to update the GDDS guide.

### Adoption of 2008 SNA, BPM6 implications, and SDDS legal text changes
- Staff propose modifying SDDS prescriptions to refer to the latest available internationally accepted statistical methodology rather than a specified manual version.
- Technical assistance will be provided to collect external debt on a BPM6 basis.
- BPM6 requires updates in sectoral distribution of external debt (e.g., use central bank rather than monetary authority, identify nondepository financial institutions separately) and incorporates liabilities for SDR allocations.

---

### Resource implications, challenges, and support
- Challenges for compilers not currently disseminating proposed data:
  - Development of new data sources and instruments.
  - Timely access to comprehensive data from providers.
  - Resource constraints for development, collection, compilation, and dissemination.
  - Possible need for new legal instruments.
- Staff view:
  - Many subscribers have incurred most fixed costs already; remaining costs likely absorbed over extended periods.
  - Staff believe challenges can be addressed over the medium term and will prioritize technical assistance.

---

### Monitoring, further FSI work, and candidate additional indicators
- Monitoring and potential prescription change:
  - Staff will monitor SDDS subscribers’ progress in FSI reporting.
  - If subscribers express interest in moving from “encouraged” to “prescribed”, this could be addressed in the Eighth Review.
- G-20 related FSI recommendations:
  - Recommendation 2: Increase number of countries disseminating FSIs, with emphasis on G-20 members, and enhance frequency and timeliness.
  - Recommendation 3: Develop standard measures of dispersion and tail risks (MCM lead; STA support).
- Tentative additional FSIs under consideration (examples from staff preliminary work):
  - For deposit takers: Customer deposits to total (noninterbank) loans.
  - For other financial corporations: Financial assets of other financial corporations to total financial system assets.
  - For nonfinancial corporations: Total debt to equity; Return on equity; Number of bankruptcy proceedings initiated.
  - For households and real estate markets: Household debt to GDP; Residential real estate loans to total gross loans; Residential real estate prices.

---

### Consultation feedback and stakeholder input
- G-20 Users’ Conference: FSIs necessary for financial stability analysis; support inclusion in SDDS and expanded country coverage; caution urged in reviewing FSI list with focus on banks.
- Subscribers: Over 25 percent of SDDS subscribers provided feedback; coordinators broadly agreed but favored keeping FSIs as encouraged; supportive of quarterly IIP; mixed reactions to external debt remaining maturity due to reporting burden.
- FSI Reference Group: 17 international/regional agencies formed a CCE/FSI Reference Group; three meetings held to discuss FSI Guide and IMF dissemination modalities.
- Capital markets advisory group: Broad support for proposals; some advocated extending encouraged FSIs to entire set of 40 indicators but most deemed that excessive initially.

---

### Issues for Board discussion (framing questions)
- Do Directors agree that the seven FSIs identified are appropriate for incorporation in the SDDS as a new data category on an encouraged basis?
- Do Directors agree that the SDDS should be modified to prescribe the IIP with quarterly periodicity and quarterly timeliness?
- Do Directors agree to incorporate a new table on external debt on a remaining maturity basis, on an encouraged basis, in the SDDS?
- Do Directors agree that staff update SDDS legal text to reflect the launch of the 2008 SNA and BPM6, giving subscribers ample time to implement changes?
- Do Directors agree that the Eighth Review should be held within 18–24 months?

---

### Annex 1 — Key counts (FSI compilation coverage from FSI Website)
- Core FSIs for Deposit Takers (selected counts)
  - I1 Regulatory capital to risk-weighted assets 48
  - I2 Regulatory Tier 1 capital to risk-weighted assets 49
  - I3 Nonperforming loans net of provisions to capital 46
  - I4 Nonperforming loans to total gross loans 47
  - I6 Return on assets 49
  - I7 Return on equity 49
  - I10 Liquid assets to total assets 47
  - I11 Liquid assets to short-term liabilities 45
  - I12 Net open position in foreign exchange to capital 39
- Encouraged and other sets (selected counts)
  - I13 Capital to assets 40
  - I22 Customer deposits to total (non-interbank) loans 37
  - I33 Household debt to GDP 14
  - I37 Residential real estate prices (index number) 19
  - I35 Average bid-ask spread in the securities market 1/ — 10
  - I36 Average daily turnover ratio in the securities market 1/ — 13
- Source: FSI Website.

---

### Annex 2 — FSI concepts and definitions (selected highlights)
- Deposit-takers: Core set definitions (examples)
  - I1 Regulatory capital to risk-weighted assets: total regulatory capital / risk-weighted assets; compiled according to Basel I or Basel II guidelines.
  - I2 Regulatory Tier 1 capital to risk-weighted assets: measured per Basel I or Basel II; based on BCBS core capital.
  - I3 Nonperforming loans net of provisions to capital: (NPLs less specific provisions) / capital; capital as total capital and reserves.
  - I4 Nonperforming loans to total gross loans: NPLs / total loan portfolio (before deduction of specific provisions).
  - I6 Return on assets: net income before extraordinary items and taxes / average total assets.
  - I11 Liquid assets to short-term liabilities: core (or broad) liquid assets / short-term liabilities.
  - I12 Net open position in foreign exchange to capital: net FX position per BCBS recommendation / total regulatory capital or Tier 1 capital.
- Encouraged set highlights
  - I13 Capital to assets: capital / total assets (leverage ratio).
  - I21 Spread between highest and lowest interbank rate: measure of dispersion in interbank rates; Guide encourages weekly compilation for same maturities.
  - I22 Customer deposits to total (noninterbank) loans: indicates reliance on wholesale funding; low ratio may signal liquidity stress.
- Other sectors and markets
  - OFCs, nonfinancial corporations, households, market liquidity, and real estate FSIs defined with respective numerators and denominators (see Annex 2 for full definitions).

*Source: Executive Summary and selected sections, _022210a.*

### Executive Summary ......................................................................................................

### Executive Summary

### Overview and context
- In December 2008, the IMF Executive Board discussed the Seventh Review of Data Standards Initiatives and requested staff to return within about a year with a proposal for the inclusion of selected financial indicators in the Special Data Dissemination Standard (SDDS).
- Staff response takes into account recent economic and financial developments, including G-20 and IMFC mandates and outcomes of consultations held in 2009.
- Key consultation and milestone dates and references:
  - March 2009: G-20 Working Group #2 recommended that the Fund and FSB explore data gaps and provide proposals.
  - April 2009: IMFC endorsed the G-20 mandate at its Spring Meetings.
  - July 2009: IMF and FSB organized a Users’ Conference on the Financial Crisis and Information Gaps.
  - November 2009: Outcomes of the Users’ Conference informed the G-20 report.

### Rationale for incorporating financial indicators in the SDDS
- The global financial crisis highlighted the need for timely, detailed financial data to provide early warning signals of risks and vulnerabilities.
- Identified broad information gaps:
  - Insufficient data on credit, liquidity, leverage, and solvency risks facing financial systems—indicating the need for macro-prudential indicators such as Financial Soundness Indicators (FSIs).
  - Insufficient data on cross-border positions—indicating the need for strengthened external debt data and higher frequency International Investment Position (IIP) data.
- The SDDS is a dynamic benchmark designed to evolve; prior enhancements (Reserves Template, external debt statistics, IIP as prescribed) demonstrate its role in promoting transparency and informing markets and policymakers.

### Specific proposal elements
- The paper proposes the following package to address identified gaps through the SDDS:
  1. Include seven Financial Soundness Indicators (FSIs) into the SDDS on an encouraged basis.
  2. Incorporate International Investment Position (IIP) data with quarterly periodicity and timeliness as an SDDS prescription.
  3. Add a simplified table on external debt by remaining maturity on an encouraged basis.
  4. Accelerate the Eighth Review of the Data Standards Initiatives to 18–24 months from the date of the Board discussion.

### Expected benefits and role of the SDDS
- The SDDS cannot prevent crises by itself but can mitigate crisis impact by providing timely, high-frequency data that help market participants and policymakers assess economic and financial conditions and differentiate performance across economies.
- Building on existing reporting frameworks and coordinating nationally and internationally is emphasized given potential costs of filling data gaps.
- Incorporating FSIs and enhanced external sector data into the SDDS is viewed as an effective tool to encourage broader dissemination of financial data across Fund membership.

### Forward-looking areas for the Eighth Review and related work
- The Eighth Review (proposed accelerated timing of 18–24 months) would consider new areas consistent with identified data gaps, including:
  - Sectoral balance sheets.
  - Enhancements to data from the IMF’s Coordinated Portfolio Investment Survey.
  - Ongoing work on FSI re-evaluation and other possible revisions or upgrades to the SDDS framework.
- The Fund and FSB are also working on an Early Warning Exercise (EWE) as a complementary tool to an enhanced SDDS.

*Source: Executive Summary, _022210a - Executive Summary.*

### 15.      The following section develops a proposal to address some of the identified gaps

### _022210a - 15.      The following section develops a proposal to address some of the identified gaps

### Specific gaps in the SDDS
- The section focuses on gaps in the SDDS covering:
  - financial soundness indicators (FSIs), and
  - external sector statistics.
- The proposals in this section would require amendments to the SDDS legal text. If approved by the Board, STA would consult with LEG to incorporate those changes. (paragraph 6)

### Financial Soundness Indicators (FSIs): purpose and background
- FSIs were developed in response to financial crises in the 1990s as macroprudential statistics to fill the gap between monetary macroeconomic statistics and microprudential data (paragraph 17).
- The FSI framework is broadly derived from the CAMELS rating system (capital adequacy, asset quality, management soundness, earnings, liquidity, and sensitivity to market risk) (footnote 7).
- The Executive Board endorsed a full list of FSIs; brief definitions are provided in Annex 1 and 2 (paragraph 17).
- FSIs vary in their lead/lag properties: some foreshadowed the present crisis while others are current or lagging indicators (paragraph 18).
- STA launched a voluntary Coordinated Compilation Exercise (CCE) in March 2004; 62 countries were invited and 58 participated, of which 55 were SDDS subscribers (Box 1).
- In July 2009, STA launched a public FSI website covering 49 economies, all of whom are SDDS subscribers (Box 1).

### Selection criteria for including FSIs in the SDDS (paragraph 19)
- Analytical usefulness across deposit-taking sector soundness aspects: capital adequacy, asset quality, profitability, credit risk, liquidity risk, and market risk.
- Usefulness as indicated in IMF Staff Position Note, Users’ Conference, and consultations with subscribers and capital market participants.
- Feasibility for countries to provide the proposed indicators without excessive reporting burden and synergies with Global Financial Stability Report (GFSR) demands—hence parsimony and focus.
- Comparative advantage of the Fund in collecting data not readily available from commercial sources.

### Proposed FSIs for inclusion in the SDDS (summary of staff proposal)
- Staff reviewed the existing 40 FSIs and, on the basis of the selection criteria, proposed seven FSIs for inclusion in the SDDS on an encouraged basis (paragraph 21).
- Proposed FSIs are compiled for the deposit-taking sector as a whole and are intended to capture different risks and vulnerabilities—capital adequacy, earnings and profitability, asset quality, liquidity, and sensitivity to market risk (paragraph 21).

- Table 1 (as presented in the source) lists the seven proposed FSIs with reporting counts and periodicity:
  - Indicator 1: Regulatory Tier 1 capital to risk-weighted assets — G-20: 15; Non G-20: 34; Total: 49; Periodicity: M: 2; Q: 23; SA: 8; A: 21; Type: CA
  - Indicator 2: Regulatory Tier 1 capital to assets — G-20: 12; Non G-20: 28; Total: 40; Periodicity: M: 2; Q: 20; SA: 8; A: 15; Type: CA
  - Indicator 3: Nonperforming loans net of provisions to capital — G-20: 15; Non G-20: 31; Total: 46; Periodicity: M: 1; Q: 22; SA: 8; A: 20; Type: CA
  - Indicator 4: Nonperforming loans to total gross loans — G-20: 15; Non G-20: 32; Total: 47; Periodicity: M: 2; Q: 22; SA: 8; A: 20; Type: CR
  - Indicator 5: Return on assets — G-20: 15; Non G-20: 34; Total: 49; Periodicity: M: 2; Q: 22; SA: 7; A: 22; Type: P
  - Indicator 6: Liquid assets to short-term liabilities — G-20: 14; Non G-20: 31; Total: 45; Periodicity: M: 2; Q: 23; SA: 7; A: 18; Type: LR
  - Indicator 7: Net open position in foreign exchange to capital — G-20: 10; Non G-20: 29; Total: 39; Periodicity: M: 2; Q: 18; SA: 7; A: 17; Type: MR
  - Periodicity codes: M - Monthly, Q - Quarterly, SA - Semiannual, A – Annual (Table 1 notes)
  - Type codes: CA - Capital adequacy, CR - Credit risk, P - Profitability, LR - Liquidity risk, MR - Market risk (Table 1 notes)
  - Note on indicator 2: closely related to indicator 13 (capital to assets ratio) of the agreed list of 40 FSIs; some countries submit using regulatory Tier 1 capital, others use broader definitions (Table 1 note 3).

### Rationale for each proposed FSI (paragraphs 22–23)
- Capital adequacy indicators (three proposed):
  - Regulatory Tier 1 capital to risk-weighted assets: measures capital adequacy based on BCBS core capital; useful for monitoring capital quality and cross-country comparability (paragraph 22).
  - Tier 1 capital to assets: measures leverage (assets funded by own funds vs. other sources); complements risk-weighted capital ratios and provides a more homogenous indicator (paragraph 22).
  - Nonperforming loans net of provisions to capital: measures extent to which capital can withstand NPL-related losses and the adequacy of provisioning (paragraph 22).
- Other indicators:
  - Nonperforming loans to total gross loans: proxy for asset quality; signals deterioration in borrower financial health (paragraph 23).
  - Return on assets: measures efficiency and bank profitability; over time informs sustainability of capital position (paragraph 23).
  - Liquid assets to short-term liabilities: informs liquidity available for short-term cash demand and maturity mismatches (paragraph 23).
  - Net open position in foreign exchange to capital: identifies exposure to exchange rate risk relative to capital (paragraph 23).

### Availability and reporting status (paragraph 24 and Box 1)
- Data availability:
  - Data for the seven proposed FSIs are available for 49 of the 67 current SDDS subscribers posted on the FSI website (http://fsi.imf.org/) (paragraph 24).
  - That is, about 70 percent of subscribers already compile and disseminate these FSIs (paragraph 24).
  - At least another four subscribers have indicated willingness and capacity to report these FSIs (paragraph 24).
- Reporting gaps among the 49 reporters (as of January 2010, paragraph 24):
  - nine subscribers do not report data on regulatory tier 1 capital to assets;
  - three subscribers do not report data on nonperforming loans net of provisions to capital;
  - two subscribers do not report data on nonperforming loans to total gross loans;
  - four subscribers do not report data on liquid assets to short-term liabilities;
  - ten subscribers do not report data on net open position in foreign exchange to capital.
  - Note: regulatory Tier 1 capital to assets ratio can be calculated from underlying data reported by most subscribers (paragraph 24 note).
- Periodicity and timeliness:
  - With respect to periodicity, 25 of these 49 subscribers do not yet disseminate quarterly data (paragraph 24).
  - The FSI website was launched in July 2009; it is too early (as of January 2010) to evaluate timeliness, but reporting subscribers have made efforts to improve periodicity and timeliness, though this is not currently part of the SDDS framework (Box 1 and paragraph 24).

### Implementation considerations and supporting points
- The CCE revealed diverse methodologies across countries due to differences in supervisory and accounting practices, data availability, costs to implement FSI Guide recommendations, and methodological views—highlighting the need for associated metadata (Box 1).
- The Executive Board noted value in regular collection and dissemination and the creation of a centralized public FSI database to enhance availability, comparability, transparency, and reduce countries’ reporting burden (Box 1).
- Complementing FSIs with higher-frequency market-based data may provide more forward-looking information on expectations and volatility (Box 1).

*Source: _022210a - 15.      The following section develops a proposal to address some of the identified gaps*

### 25.      Of the remaining 18 SDDS countries, several or all of the seven proposed

### _022210a - 25.      Of the remaining 18 SDDS countries, several or all of the seven proposed

### Financial Soundness Indicators (FSIs): availability and SDDS proposal
- Of the remaining 18 SDDS countries, several or all of the seven proposed indicators are disseminated on the websites of their respective bank supervisory agencies.
- The more widely available FSIs:
  - Return on assets: 12 countries
  - Regulatory tier 1 capital to risk-weighted assets: 9 countries
- Various combinations of the other five indicators are disseminated by seven countries.
- FSI data for 17 out of these 18 countries are published in the GFSR, relying on different sources, including direct reporting by countries.
- Requirements and staff proposals:
  - The methodology used by these countries will need to be documented prior to their dissemination on the SDDS website to ensure that users can assess the content and cross-country comparability of the indicators.
  - Countries will be contacted to request regular reporting to the IMF for dissemination of their FSIs through the Fund website.
  - Staff propose to include the above mentioned seven FSIs in the SDDS initially on an encouraged (rather than a prescribed) basis.
  - Under this proposal, the FSIs would represent a new data category and would be encouraged to be disseminated with quarterly periodicity and timeliness.
  - Subscribers would be encouraged to apply the Fund’s amended FSI Guide methodology in compiling these indicators.
  - Consistent with other SDDS data categories, subscribers would be required both to cite this internationally accepted statistical methodology and report on material deviations from this methodology in their metadata.
  - As an encouraged category, no transition period would be needed.

- Additional context:
  - While seven FSIs are being proposed for incorporation in the SDDS at this time, the other 33 indicators in the Fund’s database are also useful in assessing the soundness of the financial sector.
  - Ongoing work on data gaps in the context of the global crisis may lead to the need for enhanced compilation and dissemination of these other FSIs.
  - In the context of the next review of the Fund’s Data Standards Initiatives, staff may return to the Board with updated proposals concerning FSIs (see paragraphs 65.     - 66.      ahead).

### Status table (Table 2) — reporting of seven proposed FSIs by SDDS participating countries
- Table 2 lists country-level reporting status for Indicators 1–7 and periodicity (M, Q, SA, A), using:
  - “√” means FSIs are being reported by country
  - “NR” means not reported
- Indicator definitions (as in Table 2 footnote 1/):
  - Indicator 1: Regulatory tier 1 capital to risk weighted assets
  - Indicator 2: Regulatory tier 1 capital to assets
  - Indicator 3: Nonperforming loans net of provisions to capital
  - Indicator 4: Nonperforming loans to total gross loans
  - Indicator 5: Return on assets
  - Indicator 6: Liquid assets to short-term liabilities
  - Indicator 7: Net open position in foreign exchange to capital
- Periodicity codes (as in Table 2 footnote 2/):
  - M - Monthly
  - Q - Quarterly
  - SA - Semiannual
  - A – Annual

### External Sector Statistics — Quarterly IIP
- Problem statement:
  - Annual IIP data disseminated with three quarters timeliness meet current SDDS requirements but are too dated to be useful for surveillance.
  - The SDDS prescribes quarterly balance of payments data with quarterly timeliness; matching stocks with flows is limited to the annual figures.
  - Fund and capital market analysts rely heavily on quarterly time series; timely linkage of quarterly balance of payments data to quarterly IIP data is essential to obtain a full picture of external vulnerabilities.
  - Price changes (valuation adjustments) affecting outstanding positions are not captured in balance of payments transactions and therefore require timely IIP data for proper analysis.
- Benefits of prescribing quarterly IIP data:
  - (1) improve the understanding of valuation effects on assets and liabilities;
  - (2) place external liabilities data in the context of external assets data;
  - (3) allow more frequent observation of vulnerabilities, such as the buildup of leverage in the system;
  - (4) highlight interconnections between countries;
  - (5) support broader analytical frameworks, such as the balance sheet approach;
  - (6) provide more up-to-date information.
- Current reporting status (as of November 2009):
  - 37 SDDS subscribers (55 percent) report quarterly IIP data (with quarterly timeliness) through their National Summary Data Pages (NSDPs).
  - Another seven do so, but with a lag greater than one quarter.
  - Two disseminate the data semi-annually.
  - 12 disseminate annual data with a delay of six months.
  - The rest of the subscribers meet the SDDS requirements of annual periodicity and timeliness of three quarters.
- Staff proposal:
  - Modify the SDDS to prescribe the IIP with quarterly periodicity and quarterly timeliness.
  - Apply a four year transition period so remaining subscribers have adequate time to develop necessary data collection and compilation tools.

### Remaining Maturity of External Debt — liquidity and remaining maturity information
- Rationale:
  - The global financial crisis highlighted the need for more information on external liquidity, especially roll-over and liquidity risk.
  - Demand for data on the amount of debt falling due in the short term has increased (e.g., Greenspan-Guidotti rule).
- Data gap and solution:
  - External debt is often compiled on an original maturity basis; data are not widely available on the level of external debt coming due in the coming year.
  - Short-term external debt on a remaining maturity basis could be calculated by adding:
    - (1) the value of outstanding short-term external debt (based on original maturity), and
    - (2) the value of long-term external debt (based on original maturity) due to be paid in one year or less.
  - The latter requires new data collection for many countries.
- Minimum recommended detail (Table 3):
  - External Debt: Principal and Interest Payments Due in One Year or Less (in millions of currency units)
  - By sector — report Principal and Interest for:
    - General government
    - Monetary authorities
    - Banks
    - Other sectors
    - Direct investment-Intercompany lending
    - Total (Principal; Interest)
- Staff proposal:
  - Modify the SDDS under the quarterly external debt category to encourage dissemination of data on principal and interest payments due in one year or less with quarterly timeliness (as shown in Table 3).
  - As an encouraged category, no transition period would be needed to incorporate Table 3 in the SDDS.
  - Staff would redouble efforts to encourage subscribers to provide the external debt service profile (Table 6.2b.).

### Challenges facing SDDS subscribers
- Potential challenges for compilers who do not already disseminate the seven FSIs, quarterly IIP data and external debt by remaining maturity:
  - Development of new data sources (including design and implementation of new data gathering instruments).
  - Difficulties in obtaining comprehensive information from data providers on a timely basis.
  - Resource constraints to develop, collect, compile, and disseminate the statistics.
  - In some instances, new legal instruments may need to be developed.
- Support measures:
  - Given the relatively large number of subscribers that already disseminate these data, or have expressed ability to do so, these challenges could be addressed over the medium term.
  - To help SDDS subscribers address these challenges, STA would give priority to providing technical assistance in these areas.

### Developments since the Seventh Review — Reserves Template and SDR allocations
- Reserves Template (exchange-traded futures):
  - Following the Executive Board discussion on the Seventh Review of Data Provision to the Fund for Surveillance Purposes, in May 2008, the Board agreed during the Seventh Review to modify the Reserves Template to capture data on exchange-traded futures (including exposures settled in domestic currency).
  - These modifications took effect in August 2009 with data reported pertaining to July 2009.
  - Reporting of financial derivatives in the Reserves Template became consistent with the May 2008 amendment to Annex A, Article VIII, Section 5 of the IMF Articles of Agreement.
  - All SDDS subscribing countries are now required to use the new form and report information on exchange-traded futures, if they undertake these financial transactions.
- Guidelines update:
  - The Board agreed to the IMF staff’s proposal to update (not to completely redraft) the International Reserves and Foreign Currency Liquidity: Guidelines For A Data Template (Guidelines) to take account of changes being introduced in BPM6 and of staff experience accumulated in monitoring SDDS subscribers’ observance of the Reserves Template.
  - Progress in the update of the Guidelines has been ongoing and is expected to be completed at the end of 2010.
  - This work is being conducted in cooperation with the Reserve Assets Technical Expert Group.
- Meetings:
  - Work to date and ahead on the Reserves Template, including work in connection with the allocation of SDRs, were discussed at the Twenty-Second Meeting of the IMF Committee on Balance of Payments Statistics, held in Shanghai, People’s Republic of China, during November 2-4, 2009.

*Source: _022210a - 25.      Of the remaining 18 SDDS countries, several or all of the seven proposed (IMF PDF).*

### 40.      Prior to the recent allocation of SDRs, agreement was achieved to use BPM6 to

### _022210a - 40.      Prior to the recent allocation of SDRs, agreement was achieved to use BPM6 to

### SDR allocations and BPM6 treatment
- Under BPM6, new allocations of SDRs to participants in the IMF SDR Department are recorded as increases in gross reserve assets and as increases in long-term liabilities.
- Main changes in the treatment of SDRs (adopted in 2008 by the United Nations Statistical Commission and the IMF’s Committee on Balance of Payments Statistics):
  - Recognition of SDR allocations as long-term debt liabilities.
  - Inclusion of new allocations in balance of payments transactions (as increases in assets (holdings) and increases in liabilities (allocations of SDRs)) instead of as valuation adjustments to international investment positions.
- Staff recommendation and implementation timing:
  - Countries were recommended to reflect the new allocations of the SDRs in their balance of payments and IIP accounts for the third quarter of 2009.
  - The IIP accounts should also reflect all previously outstanding SDRs.
  - For subscribers of the SDDS, the increase in SDR holdings is being reflected in reserves assets data reported on the Reserve Template beginning with data for end-August 2009.
- Specific allocation amounts and dates (footnote detail preserved exactly):
  - A general allocation of SDR 161.2 billion was implemented on August 28, 2009, and a special one-time allocation of SDR 21.5 billion took effect on September 9, 2009.
  - These correspond to an allocation of about $250 billion in August and $33 billion in September 2009.
- External debt treatment changes:
  - Under BPM6, the gross external debt position of a member country should include a debt liability for all SDR allocations (differs from BPM5 and the External Debt Guide).
  - STA is working with the World Bank and others to align QEDS and JEDH data with BPM6.
  - These changes are reflected beginning with the Q3 2009 data release of January 2010 in the QEDS, and are expected to be disseminated soon in the JEDH.

### SDDS modifications, metadata certification, and citations of methodologies
- Addition of explicit citations to internationally accepted statistical methodologies and deviations in subscribers’ metadata:
  - SDDS legal text posted on the DSBB was amended to require explicit citations and to list internationally accepted statistical methodologies for subscribers and users.
- Desk study and subscriber actions:
  - A desk study completed by staff during mid-2009 identified cases where explicit citation and/or deviation notes needed to be added to DSBB metadata.
  - Results were communicated to SDDS coordinators in the October monthly observance reports with a request to make these explicit citations and note deviations before end-2009, in time for the annual certification exercise scheduled for January 2010.
  - Subscribers’ progress is monitored monthly; a number of subscribers still need to modify metadata to fully incorporate citations and deviations.
  - Staff warned that if, in staff’s judgment, a subscriber does not provide clear citations and metadata on deviations, the SDDS nonobservance procedures would apply.
- Metadata certification timing:
  - The Board’s decision to change regular SDDS metadata certification from quarterly to annual (taken at the Seventh Review) was implemented starting with 2009.
  - The SDDS legal text was amended to request SDDS subscribers to certify their metadata annually, one month after the end of the calendar year.
  - The first annual metadata certification is for 2009, and it was due by January 31, 2010.
  - The results of this certification exercise will be recorded in the subscribers’ Annual Observance Reports for 2009, which will be published on the DSBB by end-May 2010.

### Data quality assessments (including Data ROSCs) and GDDS alignment
- Data ROSC expectations and country responses:
  - At the Seventh Review, Directors agreed SDDS subscribers should be encouraged to conduct and publish a data quality assessment at least once every 7–10 years, either through an IMF-conducted data ROSC or a comparable international assessment.
  - Staff have written to all subscribers that have not published such an assessment within this time frame; roughly half have already requested that a new Data ROSC be undertaken soon (that is, in FY2010 or 2011).
  - A few subscribers have not responded and one has declined to conduct a Data ROSC assessment at this time.
  - Several other SDDS countries have requested a data ROSC update, including requests for four G-20 countries.
- GDDS alignment actions:
  - In July 2009, the GDDS legal text was updated to align more closely with the SDDS, specifying the same data categories with periodicities and timeliness slightly less demanding.
  - The legal text now recommends that GDDS participants establish an NSDP on the internet, linkable to the DSBB via hyperlinks, containing the most recent and previous observations and, where possible, links to additional information.
  - Staff initiated two projects:
    - Convert GDDS metadata to be more in line with the SDDS on the DSBB using the Data Quality Assessment Framework (DQAF), allowing GDDS metadata to be searched by DQAF codes and better aligning them to SDDS metadata.
    - Update the GDDS guide on the web to incorporate recent changes and to intensify the process of graduation from the GDDS to the SDDS.
  - These projects are expected to take about another year for completion.

### Adoption of 2008 SNA, BPM6, and implications for external debt and SDDS prescriptions
- SDDS prescription change:
  - The Board approved a new SDDS prescription requiring subscribers to explicitly reference internationally accepted statistical methodologies and deviations in their SDDS metadata.
  - International statistical community updated key methodologies: the 2008 SNA and BPM6.
  - Staff propose modifying SDDS prescriptions to refer to the latest available internationally accepted statistical methodology, rather than a specified version of the manual.
  - Technical assistance will be provided by the IMF to collect external debt on the BPM6 basis.
- Specific BPM6-related changes relevant to SDDS:
  - Sectoral distribution of external debt currently prescribed on a BPM5 basis should be updated to BPM6 basis, which:
    - Uses the central bank rather than monetary authority as the relevant institutional unit.
    - Separately identifies nondepository financial institutions.
  - BPM6 changes components of external debt (e.g., liabilities for SDR allocations).

### Work program, resource implications, and timing of the Eighth Review
- Resource implications:
  - Cost of disseminating financial indicators through the SDDS will vary across countries; many countries have already incurred most fixed costs.
  - For countries not yet disseminating quarterly IIPs, some proposed FSIs, or external debt on a remaining maturity basis, staff believe subscribers will absorb those costs over extended periods of time.
  - Proposed changes to the SDDS framework are likely to have resource implications for the Fund, including support to assist SDDS subscribers.
- Proposal to accelerate the Eighth Review:
  - Staff propose to accelerate the Eighth Review to within 18–24 months of this Board discussion to take into account international discussions on data needed for policy purposes and to review implications of the global financial crisis on existing data categories.
  - The accelerated review would provide an opportunity to review progress with the proposed modifications and to re-evaluate the traditional FSIs.
- Rationale and related work:
  - The financial crisis highlighted that traditional FSIs may not provide the most effective warning signals and may need re-evaluation.
  - Ongoing work focuses on re-evaluating the list of FSIs, increasing frequency of FSI reporting, and constructing additional FSIs to address identified data gaps.
  - This work is consistent with the Report on The Financial Crisis and Information Gaps, Report to the G-20 Finance Ministers and Central Bank Governors (October 2009).

### Sectoral balance sheets, Coordinated Portfolio Investment Survey (CPIS), and balance sheet approach
- Emphasis on integrated economic data:
  - The global crisis reinforced the importance of integrated economic data, both stocks and flows, to analyze cross-sector impacts and vulnerabilities.
  - The G-20 report on the Financial Crisis and Information Gaps calls for international agencies to promote compilation and dissemination of balance sheet approach outputs, flow of funds, and sectoral data.
- Progress and gaps:
  - Over the past 15 years, significant progress has been made integrating macroeconomic databases around the SNA framework.
  - Progress on balance sheets accomplished particularly for monetary and financial statistics and the IIP.
  - IMF staff have collaborated with over 100 member countries to disseminate harmonized statistics; the number of IIP reporters has increased to significantly more than 100 economies.
  - Significant gaps remain for nonbank financial institutions, general government, nonfinancial corporations, and household sectors.
  - For general government debt, a public sector template is being discussed to collect and disseminate general government (and possibly broader public sector) data on debt stocks (and other liabilities and assets).
- CPIS enhancements:
  - Staff will work on enhancing the IMF’s Coordinated Portfolio Investment Survey (CPIS) to provide richer information on cross-country financial linkages (from-whom-to-whom basis).
  - Enhancements may include increasing the number of participating countries, increasing frequency, or improving timeliness of release of results.
- Planned staff action:
  - Staff propose to work more intensively with countries and international agencies to promote compilation of integrated sectoral information and to return to the Executive Board at the time of the Eighth Review with recommendations for strengthening the SDDS in this regard.

### Financial Soundness Indicators (FSIs) — monitoring, recommendations, and tentative additions
- Monitoring and possible prescription change:
  - Staff will monitor SDDS subscribers’ progress in reporting FSIs.
  - If subscribers express interest in moving from “encouraged” reporting to “prescribed” reporting, this could be addressed in the context of the Eighth Review.
  - For the time being, “encouraged” remains in line with countries’ views.
- G-20 Report recommendations related to FSIs:
  - Recommendation 2: Increase number of countries disseminating FSIs―with special emphasis on G-20 members―and enhance frequency and timeliness of dissemination. STA is working to enhance data collection to include high-frequency and timely data for cross-country comparisons.
  - Recommendation 3: Develop standard measures of dispersion and tail risks. MCM is expected to take the lead, with STA supporting through additional accounting balance sheet data and eventual collection of measures of dispersion.
- Staff will examine criteria for selecting additional FSIs for inclusion in the SDDS and may return with an updated list. Based on preliminary work, tentative additional FSIs under consideration include:
  - For deposit takers:
    - Customer deposits to total (noninterbank) loans (used to detect liquidity problems and potential liquidity stress in the banking system).
  - For other financial corporations:
    - Financial assets of other financial corporations to total financial system assets (a measure of the relative importance of the other financial corporation sector within the domestic financial system).
  - For nonfinancial corporations (three FSIs):
    - Total debt to equity (measure of corporate leverage).
    - Return on equity (profitability ratio capturing efficiency in using capital).
    - Number of bankruptcy proceedings initiated (numerical measure showing a trend of the business climate; influenced by national bankruptcy legislation).
  - For households and real estate markets (three possible FSIs):
    - Household debt to Gross Domestic Product (GDP) (measures vulnerability of households to economic and financial market shocks).
    - Residential real estate loans to total gross loans (identifies deposit takers’ exposure to the residential real estate sector).
    - Residential real estate prices (helps identify emergence of potential bubbles, market corrections, and recoveries).

*Source: _022210a - 40.      Prior to the recent allocation of SDRs, agreement was achieved to use BPM6 to*

### 67.      Staff would also continue to explore other FSIs that may be deemed useful for an

### _022210a - 67.      Staff would also continue to explore other FSIs that may be deemed useful for an

### Review of Financial Soundness Indicators (FSIs) and SDDS implications
- Staff will continue to explore other FSIs that may be deemed useful for an assessment of financial system soundness and could be considered for inclusion in the SDDS at the time of the Eighth Review.
- The financial crisis has prompted the need to review the current 40 FSIs for their usefulness in assessing the soundness of financial systems or for early warning purposes.
- Requirements of the Fund’s multilateral surveillance and developments in regulatory and supervisory frameworks over the coming months, e.g., changes in Basel requirements, may provide further insights into other relevant indicators.
- The work program leading to the Eighth Review will involve a careful examination of the analytical and research work undertaken with respect to lessons from the financial crisis and set out relevant options for selecting additional indicators for assessing financial sector soundness.
- The Eighth Review should address the importance of high-frequency data for the Fund’s ongoing and future work on more timely and newer market-based FSIs, and could recommend the use of high-frequency market data to provide an early view of emerging risks and other financial sector developments.
- Possible outcomes:
  - Revision of the current FSI list, including the reallocation of existing FSIs between core and encouraged categories.
  - Addition of new FSIs which might have implications for the inclusion of FSIs in the SDDS.
  - Exploratory work on the merits of retaining the FSIs in the SDDS or creating a new framework that could evolve from the idea of new Financial Data Dissemination Standard put forward in the chapeau paper on the Fund’s mandate.

### Housing and real estate data relevance
- Key data needs:
  - Stocks of dwellings and associated price levels and their changes over time to inform household wealth and vulnerability assessments.
  - Values of commercial property relevant for nonfinancial corporate sector wealth and financial stability, given commercial property’s role as collateral for bank lending.
- Limitations and ongoing work:
  - Where data exist, their international comparability is limited.
  - A handbook on real estate price indices is being produced led by Eurostat under the Inter-Secretariat Working Group on Price Statistics (UN/ECE, ILO, IMF, OECD, World Bank, and Eurostat).
  - The BIS has collected a large number of property price indicators from various countries.
  - Future work may lead to an extension to the SDDS (likely on an encouraged basis).

### Consultations — Summary of stakeholder input
- G-20 Users’ Conference
  - FSIs considered a necessary part of the dataset for financial stability analysis, supporting inclusion in the SDDS and expanding country coverage.
  - Participants urged caution in any review of the FSI list, with the principal focus maintained on banks.
- Subscribers
  - Multiple consultations held with SDDS coordinators and IMF staff; more than 25 percent of SDDS subscribers provided feedback.
  - Coordinators broadly agreed with proposals but stressed keeping the FSI data category on an encouraged basis because:
    - The list of FSIs does not capture the statistical distribution (to capture the tails).
    - FSIs may be inefficient early warning signals but provide relevant information on a subscriber’s ability to withstand a crisis.
  - Importance of individual indicators may shift over time; SDDS framework should remain flexible.
  - On external sector statistics:
    - Coordinators generally supportive of quarterly IIP; most already provide these data via the DSBB or elsewhere.
    - Reactions to external debt by remaining maturity were mixed; about half provide such data elsewhere, including through the QEDS (supplementary Table 3.1).
    - Some coordinators advocated keeping external debt data in the SDDS in a single table with sublines, as suggested by staff.
    - Compilers not currently producing these data cited reporting burden and resource constraints; many thought issues could be overcome over the medium term, especially in the ECB area, with regulatory/reporting changes. The ECB stated willingness to collaborate with the Fund.
- FSI Reference Group
  - STA created a CCE/FSI Reference Group composed of 17 international and regional agencies to formalize collaboration.
  - The Reference Group held three meetings to discuss the FSI Guide and agreed on modalities for disseminating FSI data by the IMF.
  - Reference Group meetings provided:
    - A forum for exchange of information on FSI-related work.
    - Opportunities for Fund staff to present developments in IMF’s FSI work, including compilation methodology.
    - Opportunities to identify areas where harmonization of data compilation and reporting methodologies was needed.
  - Staff will continue collaboration with the Reference Group; further consultation meetings may be held prior to the Eighth Review.
- Capital markets and other stakeholders
  - An informal capital markets advisory group (investment banks, credit rating agencies, research institutions) indicated broad support for incorporating proposals in the SDDS.
  - Some participants advocated extending the list of encouraged FSIs to the entire set of 40 indicators; most deemed this excessive for initial implementation.
  - Group participants endorsed incorporating external debt by remaining maturity but questioned availability for dissemination.
  - The informal advisory group supported further SDDS extensions, with most preferring to address these in the context of the Eighth Review.

### Issues for Discussion (Board questions)
- Do Directors agree that the seven financial soundness indicators identified by staff during consultations since the Seventh Review Board discussion are appropriate for incorporation in the SDDS as a new data category on an encouraged basis?
- Do Directors agree that it is appropriate for the SDDS to be modified to prescribe the IIP with quarterly periodicity and quarterly timeliness (rather than annual periodicity and 3 quarters timeliness)?
- Do Directors agree that it is appropriate to incorporate a new table on external debt on a remaining maturity basis, on an encouraged basis, in the SDDS?
- Do Directors agree that staff update the SDDS legal text to reflect the modifications due to the launch of the 2008 SNA and BPM6, giving subscribers ample time to implement the changes recommended by these new manuals?
- Do Directors agree that the Eighth Review should be held within 18–24 months?

### Annex 1: FSIs Currently Compiled by Reporting Countries — Key counts
- Core FSIs for Deposit Takers
  - I1 Regulatory capital to risk-weighted assets 48
  - I2 Regulatory Tier 1 capital to risk-weighted assets 49
  - I3 Nonperforming loans net of provisions to capital 46
  - I4 Nonperforming loans to total gross loans 47
  - I5 Sectoral distribution of loans to total loans 43
  - I6 Return on assets 49
  - I7 Return on equity 49
  - I8 Interest margin to gross income 49
  - I9 Noninterest expenses to gross income 49
  - I10 Liquid assets to total assets 47
  - I11 Liquid assets to short-term liabilities 45
  - I12 Net open position in foreign exchange to capital 39
- Encouraged FSIs for Deposit Takers
  - I13 Capital to assets 40
  - I14 Large exposures to capital 27
  - I15 Geographical distribution of loans to total loans 27
  - I16 Gross asset position in financial derivatives to capital 28
  - I17 Gross liability position in financial derivatives to capital 28
  - I18 Trading income to total income 37
  - I19 Personnel expenses to noninterest expenses 40
  - I20 Spread between reference lending and deposit rates 29
  - I21 Spread between highest and lowest interbank rates 13
  - I22 Customer deposits to total (non-interbank) loans 37
  - I23 Foreign-currency-denominated loans to total loans 35
  - I24 Foreign-currency-denominated liabilities to total liabilities 34
  - I25 Net open position in equities to capital 17
- Encouraged FSIs for Other Financial Corporations
  - I26 OFC's financial assets to total financial assets 20
  - I27 OFC's financial assets to GDP 18
- Encouraged FSIs for Nonfinancial Corporations
  - I28 Total debt to equity 15
  - I29 Return on equity 14
  - I30 Earnings to interest and principal expenses 7
  - I31 Net foreign exchange exposure to equity 2
  - I32 Number of bankruptcy proceedings initiated 10
- Encouraged FSIs for Households
  - I33 Household debt to GDP 14
  - I34 Household debt service and principal payments to income 8
- Encouraged FSIs for Market Liquidity
  - I35 Average bid-ask spread in the securities market 1/
    - 10
  - I36 Average daily turnover ratio in the securities market 1/
    - 13
  - Note: 1/ Or in other markets that are most relevant to bank liquidity, such as foreign exchange markets.
- Encouraged FSIs for Real Estate Markets
  - I37 Residential real estate prices (index number) 19
  - I38 Commercial real estate prices (index number) 8
  - I39 Residential real estate loans to total loans 25
  - I40 Commercial real estate loans to total loans 16
- Source: FSI Website.

*Source: _022210a - extracted content (pages 30–34) from the provided PDF content unit.*

### Annex 2:

### Annex 2: Financial Soundness Indicators—Concepts and Definitions

### Deposit-Takers: Core Set
- I1 Regulatory capital to risk-weighted assets
  - This FSI is calculated using total regulatory capital as the numerator and risk-weighted assets as the denominator. Data are compiled in accordance with the guidelines of either Basel I or Basel II. It measures the capital adequacy of deposit takers. Capital adequacy and availability ultimately determine the degree of robustness of financial institutions to withstand shocks to their balance sheets.
- I2 Regulatory Tier 1 capital to risk-weighted assets
  - The data for this FSI are also compiled in accordance with the guidelines of either Basel I or Basel II. It measures the capital adequacy of deposit takers based on the core capital concept of the Basel Committee on Banking Supervision (BCBS).
- I3 Nonperforming loans net of provisions to capital
  - This FSI is calculated by taking the value of nonperforming loans (NPLs) less the value of specific loan provisions as the numerator and capital as the denominator. Capital is measured as total capital and reserves in the sectoral balance sheet; for cross-border consolidated data, total regulatory capital can also be used. This FSI is a capital adequacy ratio and is an important indicator of the capacity of bank capital to withstand losses from NPLs.
- I4 Nonperforming loans to total gross loans
  - This FSI is calculated by using the value of NPLs as the numerator and the total value of the loan portfolio (including NPLs, and before the deduction of specific loan-loss provisions) as the denominator. This FSI is often used as a proxy for asset quality and is intended to identify problems with asset quality in the loan portfolio.
- I5 Sectoral distribution of loans to total loans
  - This FSI is calculated using lending to each of the institutional sectors reported in the sectoral balance sheet of the deposit takers as the numerators and total gross loans as the denominator. This FSI is an asset quality ratio. It provides information on the distribution of loans (including NPLs and before the deduction of specific loan-loss provisions) to resident sectors and to nonresidents. Lack of sectoral diversification in the loan portfolio signals the potential existence of an important vulnerability in the financial system.
- I6 Return on assets
  - This FSI is calculated by dividing net income before extraordinary items and taxes (as recommended in the FSI Guide) by the average value of total assets (financial and nonfinancial) over the same period. This FSI is an indicator of bank profitability and is intended to measure deposit takers’ efficiency in using their assets.
- I7 Return on equity
  - This FSI is calculated by dividing net income before extraordinary items and taxes by the average value of capital over the same period. Capital is measured as total capital and reserves as reported in the sectoral balance sheet; for cross-border consolidated data, Tier 1 capital can also be used. This FSI is a bank profitability indicator and is intended to measure deposit takers’ efficiency in using their capital.
- I8 Interest margin to gross income
  - This FSI is calculated by using net interest income as the numerator and gross income as the denominator. It is a profitability ratio, which measures the relative share of net interest earnings—interest earned less interest expenses—within gross income. In the case of banks with low leverage, this FSI will tend to be higher.
- I9 Noninterest expenses to gross income
  - This FSI is a profitability ratio, which measures the size of administrative expenses within gross income—that is, it measures the efficiency of deposit takers’ use of resources.
- I10 Liquid assets to total assets (liquid asset ratio)
  - This FSI is calculated by using the core measure of liquid assets as the numerator and total assets as the denominator. The ratio can also be calculated using the broad measure of liquid assets as the numerator. This FSI is a liquid asset ratio, which provides an indication of the liquidity available to meet expected and unexpected demands for cash. The level of liquidity indicates the ability of the deposit-taking sector to withstand shocks to their balance sheet.
- I11 Liquid assets to short-term liabilities
  - This FSI is calculated by using the core measure of liquid assets as the numerator and short-term liabilities as the denominator. The ratio can also be calculated by taking the broad measure of liquid assets as the numerator. This FSI is a liquid asset ratio and is intended to capture the liquidity mismatch of assets and liabilities, and provides an indication of the extent to which deposit takers can meet the short-term withdrawal of funds without facing liquidity problems.
- I12 Net open position in foreign exchange to capital
  - The net open position in foreign exchange should be calculated based on the recommendation of the BCBS. Capital should be total regulatory capital or Tier 1 capital as net open position in foreign exchange is a supervisory concept. This FSI is an indicator of sensitivity to market risk, which is intended to show deposit takers’ exposure to exchange rate risk compared with capital. It measures the mismatch of foreign currency asset and liability positions to assess the vulnerability to exchange rate movements.

### Deposit-Takers: Encouraged Set
- I13 Capital to assets
  - This FSI is the ratio of capital to total assets, without the latter being risk weighted. Capital is measured as total capital and reserves as reported in the sectoral balance sheet; for cross-border consolidated data, Tier 1 capital can also be used. It indicates the extent to which assets are funded by other than own funds and is a measure of capital adequacy of the deposit-taking sector. It complements the capital adequacy ratios compiled based on the methodology agreed to by the BCBS. Also, it measures financial leverage and is sometimes called the leverage ratio.
- I14 Large exposures to capital
  - This FSI is calculated by using the value of large exposures as the numerator and capital as the denominator. From a supervisory point of view, large exposures are defined as one or more credit exposures to the same individual or group that exceed a certain percentage of regulatory capital, such as 10 percent. Capital should be total regulatory capital or Tier 1 capital. This is an asset quality ratio, which is intended to identify vulnerabilities arising from the concentration of credit risk.
- I15 Geographical distribution of loans to total loans
  - This FSI is calculated by using loans distributed geographically (by region, country, or jurisdiction) as the numerators and total gross loans as the denominator. The suggested regional classification follows that used in the IMF’s World Economic Outlook. This FSI is an asset quality ratio, which monitors credit risk arising from exposures to particular (groups of) countries, and helps to assess the impact of adverse events in these countries on the domestic financial system. It is a measure of concentration risk of the deposit takers.
- I16 Gross asset position in financial derivatives to capital
  - This FSI is calculated by using the market value of financial derivative assets as the numerator and capital as the denominator. Capital is measured as total capital and reserves as reported in the sectoral balance sheet; for cross-border consolidated data, Tier 1 capital can also be used. This FSI is an asset quality ratio and is intended to provide an indication of the exposure of deposit takers’ financial derivative asset positions relative to capital.
- I17 Gross liability position in financial derivatives to capital
  - This FSI is calculated by using the market value of financial derivative liabilities as the numerator and capital as the denominator. Capital is measured as total capital and reserves as reported in the sectoral balance sheet; for cross-border consolidated data, Tier 1 capital can also be used. This FSI is an asset quality ratio and is intended to provide an indication of the exposure of deposit takers’ financial derivative liability positions relative to capital.
- I18 Trading income to total income
  - This FSI is calculated by using gains or losses on financial instruments as the numerator and gross income as the denominator. It is an indicator of earnings and profitability, which is intended to capture the share of deposit takers’ income from financial market activities, including currency trading—that is, it measures the deposit takers’ reliance on market-related activity to generate profits.
- I19 Personnel expenses to noninterest expenses
  - This FSI is an indicator of earnings and profitability. It provides an indication of efficiency as a high or increasing ratio could undermine profitability.
- I20 Spread between reference lending and deposit rates
  - This FSI is the difference (expressed in basis points) between the weighted average loan rate and the weighted average deposit rate, excluding rates on loans and deposits between deposit takers. It is an indicator of earnings and underlying profitability of the deposit-taking sector. It can also be used as a gauge of competitiveness within the sector.
- I21 Spread between highest and lowest interbank rate
  - This FSI measures the spread between the highest and lowest interbank rates (SIRs) charged to deposit takers in the domestic interbank market. The Guide encourages weekly compilation of SIRs, using end-period rates for loans of the same maturity (overnight or weekly). This is a liquidity indicator. The dispersion in interbank rates is a very useful indicator of liquidity problems and bank distress. A high dispersion in interbank rates may signal that some institutions are perceived by their peers as vulnerable.
- I22 Customer deposits to total (noninterbank) loans
  - This FSI is sometimes used to detect liquidity problems—a low ratio might indicate potential liquidity stress in the banking system and perhaps a loss of depositor and investor confidence in the long-term viability of the sector. It also provides an indication of the extent to which banks need to rely on wholesale funding to fund their loan book. This indicator is likely to attract more attention in the future given the number of banks that ran into problems because of their reliance on wholesale markets.
- I23 Foreign-currency-denominated loans to total loans
  - This FSI is calculated by using the foreign currency and foreign-currency-linked part of gross loans to residents and nonresidents as the numerator and total gross loans as the denominator. It is an asset quality indicator, which measures the relative size of foreign currency loans within gross loans and therefore monitors exposures to both credit and currency risk.
- I24 Foreign-currency-denominated liabilities to total liabilities
  - This FSI is calculated using foreign currency liabilities as the numerator and total debt plus financial derivative liabilities less financial derivative assets as the denominator. It is an indicator that measures the relative importance of foreign currency funding within total liabilities. A high reliance on foreign currency borrowing (particularly of short-term maturity) may signal that deposit takers are taking greater risks.
- I25 Net open position in equities to capital
  - This FSI is calculated by using deposit takers’ net open position in equities as the numerator and capital as the denominator. Capital should be total regulatory capital or Tier 1 capital. This FSI is an indicator of sensitivity to market risk, which is intended to identify deposit takers’ equity risk exposure compared with capital.

### Other Financial Corporations
- I26 Assets to total financial system assets
  - This FSI is calculated using OFCs’ financial assets as the numerator and total financial system assets as the denominator. The latter is the total of financial assets owned by deposit takers, OFCs, nonfinancial corporations, households, the general government, and the central bank. This FSI measures the relative importance of OFCs within the domestic financial system.
- I27 Assets to GDP
  - This FSI is calculated using OFCs’ financial assets as the numerator and gross domestic product as the denominator. It measures the importance of OFCs compared to the size of the economy.

### Nonfinancial Corporations
- I28 Total debt to equity
  - This FSI is calculated by using debt as the numerator and capital and reserves as the denominator. It is a measure of corporate leverage—the extent to which activities are financed out of own funds.
- I29 Return on equity
  - This FSI is calculated by using earnings before interest and tax as the numerator and the average value of capital and reserves over the same period as the denominator. It is a profitability ratio, which is commonly used to capture nonfinancial corporations’ efficiency in using their capital.
- I30 Earnings to interest and principal expenses
  - This FSI is calculated by using earnings (net income) before interest and tax plus interest receivable from other nonfinancial corporations as the numerator and debt service payments over the same period as the denominator. It measures nonfinancial corporations’ capacity to cover their debt service payments (interest and principal). It serves as an indicator of the risk that a firm may not be able to make the required payments on its debts.
- I31 Net foreign exchange exposure to equity
  - This FSI is calculated by using nonfinancial corporations’ net foreign exchange exposure for on-balance-sheet items as the numerator and capital and reserves as the denominator. It measures nonfinancial corporations’ exposure to foreign currency risk compared to their capital. The larger the exposure to foreign currency risk, the greater the stress on the financial soundness of nonfinancial corporations from a significant currency depreciation, and, as a consequence, on deposit takers.
- I32 Number of applications for protection from creditors
  - This FSI is a simple numerical addition of the cases where bankruptcy proceedings are actually initiated during the period. It is a measure of bankruptcy trends, but it is influenced by the quality and nature of national bankruptcy and related legislation.

### Households
- I33 Household debt to GDP
  - The data for household debt comprise debt incurred by resident households of the economy only. This FSI measures the overall level of household indebtedness (commonly related to consumer loans and mortgages) as a share of GDP.
- I34 Household debt service and principal payments to income
  - This FSI is calculated by using household debt service payments as the numerator and gross disposable income over the same period as the denominator. It measures the capacity of households to cover their debt payments (interest and principal).

### Market Liquidity
- I35 Average bid-ask spread in the securities market
  - This FSI is calculated as the difference between the best (highest) bid and the best (lowest) ask price in the market, expressed as a percentage of the mid-point of the buy and sell price of an asset—a benchmark domestic government or central bank debt security in the first instance. Bid-ask spreads tend to be narrower in more liquid and efficient markets. This FSI is a measure of market tightness—the relative cost of engaging in a transaction irrespective of the absolute level of the market price of the items being sold.
  - Footnote: And in other markets that are most relevant to bank liquidity, such as foreign exchange markets.
- I36 Average daily turnover ratio in the securities market
  - This FSI is calculated as the number of securities bought and sold during a trading period divided by the average number of securities outstanding at the beginning and the end of the trading period. The Guide recommends that turnover be calculated in the first instance for a benchmark domestic government or central bank debt security. This FSI is a measure of market depth—the ability of a market to absorb large trade volumes without significant impact on market prices.

### Real Estate Markets
- I37 Residential real estate prices
  - This FSI covers residential real estate price indices. Currently, there is limited international experience in constructing representative real estate price indices as real estate markets are heterogeneous, both within and across countries, and illiquid. A rapid increase in real estate prices, followed by a sharp economic downturn, can have a detrimental effect on financial sector soundness by affecting credit quality and the value of collateral.
- I38 Commercial real estate prices
  - As with I37, there is currently limited international experience in constructing representative real estate price indices for the commercial sector.
- I39 Residential real estate loans to total loans
  - This FSI is an asset quality ratio, which is intended to identify deposit takers’ exposure to the residential real estate sector, with the focus on household borrowers. A high concentration of the loan portfolio in real estate signals the potential existence of an important vulnerability in the financial system.
- I40 Commercial real estate loans to total loans
  - This FSI is calculated by using in the numerator loans collateralized by commercial real estate, loans to construction companies, and loans to companies active in the development of real estate; and gross loans as the denominator. It is an asset quality ratio, which measures banks’ exposure to the commercial real estate market, and carries the same vulnerability risks as I 39 associated with a high ratio.

*Annex 2: Financial Soundness Indicators—Concepts and Definitions*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2010/_022210a.pdf_