## _111313b

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### INTRODUCTION — purpose, scope, process
- Provides underpinning to the main policy paper “Modifications to the Current List of Financial Soundness Indicators (FSIs),” including rationale for amendments, introduction of new FSIs, and exclusion of certain FSIs.
- Reports work by the IMF’s Statistics Department (STA) in collaboration with the Financial Soundness Indicators Reference Group (FSIRG), international standard setting bodies, relevant IMF departments, FSI-reporting countries, and concerned international organizations.
- Revision driven by: the global financial crisis, adoption of the Basel III Accord, and the G-20 Data Gaps Initiative’s (DGI) Recommendation no. 2 to review the current FSI list.
- Draws from three STA position notes circulated to FSIRG and FSI-reporting countries; final position notes reflect comments received and were posted on a dedicated FSIRG website.
- Scope covered in this content unit: Deposit takers (DTs) — impact of Basel III on current FSIs; new capital-based and other indicators; other agreed issues with the FSIRG.
- Key procedural point: Breaks in time series are expected where jurisdictions implement different Basel accords simultaneously, but these breaks are not expected to be significant given the length of the transition period.

### BASEL III — changes to regulatory capital, buffers, and leverage
- Basel III redefines elements included in total regulatory capital with greater emphasis on common equity; Tier 1 split into Common Equity Tier 1 (CET1) and Additional Tier 1 (AT1); Tier 3 eliminated.
- Capital composition shifts toward equity capital (Tier 1) and away from subordinated debt (Tier 2).
- Capital Conservation Buffer:
  - Size: 2.5 percent of risk-weighted assets above the regulatory minimum capital requirement.
  - Composition: solely CET1.
  - Phasing: between January 2016 and end-2018 with initial requirement of 0.625 percent of risk-weighted assets and additional 0.625 percent each year to reach 2.5 percent in 2019.
  - Full effectiveness date: January 1, 2019.
  - Effect: increases minimum effective capital requirement to 10.5 percent in 2019 when combined with minimum capital requirements.
- Countercyclical Capital Buffer:
  - Treated as an extension of the conservation buffer; phased-in in parallel between January 1, 2016 and end-2018; to be met by CET1 only (BCBS reviewing possibility of accepting “other fully absorbing capital beyond CET1”).
- Leverage Ratio:
  - Introduces a simple, transparent, non-risk-based leverage ratio as a supplementary measure.
  - Capital measure: based on new definition of Tier 1 capital.
  - Denominator: all balance sheet assets (with add-on for potential future exposures of derivatives and securities financing transactions) and off-balance sheet commitments (commitments, unconditionally cancellable commitments, direct credit substitutes, acceptances, stand-by letters of credit, trade letters of credit, failed transactions, unsettled securities).
  - Calculation: average of the monthly leverage ratio over the quarter.
  - Set level: 3 percent.
  - Testing and migration: tested during a parallel run period between 2013 and 2017, with a migration to Pillar 1 foreseen for 2018.
  - Bank level disclosure of the leverage ratio and its components will start in January 2015.
  - Footnote monitoring timeline preserved: monitoring began January 2011; parallel run January 2013–January 2017; disclosure at bank level starts January 2015; BCBS will test minimum Tier 1 leverage of 3 percent during January 1, 2013 to January 1, 2017.

### Regulatory capital exact definitions and minima (preserve exact values)
- Under Basel II:
  - Tier 1 capital: primarily equity capital and freely available disclosed reserves.
  - Minimum Tier 1 capital ratio required: 4 percent.
  - Total capital adequacy ratio minimum: 8 percent.
- Under Basel III:
  - CET1 components: common shares, retained earnings, accumulated other comprehensive income, other disclosed reserves.
  - AT1 components: subordinated instruments with no maturity and neither secured nor covered by a guarantee of the issuer.
  - Minimum CET1 capital ratio: increases from 3.5 percent in 2013 to 4.5 percent in 2015.
  - Minimum total Tier 1 capital ratio: increases from 4.5 percent in 2013 to 6 percent in 2015.
  - Tier 2 includes only long-term (more than five years) subordinated, non-guaranteed instruments issued by the bank, plus general provisions up to 1.25 percent of credit risk-weighted assets, and excess of total eligible provisions up to a maximum of 0.6 percent of credit risk-weighted assets.
  - Tier 3 capital eliminated.
  - Minimum total capital adequacy ratio remains 8 percent, with a minimum of 6 percent constituted by Tier 1 capital.
- Aggregation guidance when Basel I/II/III coexist:
  - Sectoral CET1 = Basel I Tier 1 + Basel II Tier 1 + Basel III CET1–supervisory deductions
  - Sectoral Tier 1 = Basel I Tier 1 + Basel II Tier 1 + Basel III Tier 1 (Tier1 (CET1 + AT1) – supervisory deductions)
  - Sectoral Tier 2 = Basel I Tier 2 + Basel II Tier 2 + Basel III Tier 2 (Tier 2 – supervisory deductions)
  - Sectoral Tier 3 (if applicable) = Basel I Tier 3 + Basel II Tier 3
  - Sectoral supervisory deductions = Basel I supervisory deductions + Basel II supervisory deductions + Basel III supervisory deductions
  - Sectoral Total Regulatory Capital = Sectoral Tier 1 + Sectoral Tier 2 + Sectoral Tier 3 (if applicable) – Sectoral supervisory deductions
- Countries should indicate in metadata if they aggregate using different Basel accords and provide number of deposit-takers and percent share of capital compiled using each Basel accord, if possible.

### CAPITAL-BASED FSIs — revisions and new solvency/leverage indicators
- General approach: revised FSI definitions should explicitly defer to Basel III definitions where jurisdictions adopt Basel III; aim to standardize definitions for cross-country comparability while allowing limited flexibility with strong analytical justification.
- Specific revisions and notes:
  - I01 – Total Regulatory Capital to Risk-Weighted Assets: move to Basel III definition of total regulatory capital for adopters; numerator = total regulatory capital (Tier 1 and Tier 2 as defined in Basel III).
  - I02 – Regulatory Tier 1 Capital to Risk-Weighted Assets: move to Basel III definition of Tier 1 capital for adopters; inclusion of AT1 increases minimum Tier 1 capital requirement to 6 percent; including the conservation buffer would bring this ratio to 8.5 percent (compared with the current minimum Tier 1 capital ratio of 4 percent).
  - I03 – NPLs Net of Provisions to Capital: move to Basel III definition of total regulatory capital for adopters; preferred denominator = total regulatory capital; flexibility for balance sheet capital when domestic consolidation (DC) is used and foreign-owned branches are not required to hold regulatory capital.
  - I12 – Net Open Position in Foreign Exchange to Capital: option of using Tier 1 capital is eliminated; denominator = total regulatory capital only; classified as solvency-related.
  - I14 – Large Exposures to Capital: option of using Tier 1 capital is eliminated; denominator = total regulatory capital only.
  - I13 – Capital to Assets: moved to the core set; calculation revised to use Tier 1 capital as numerator and total assets (financial and nonfinancial) as denominator; option of using balance sheet capital eliminated; to be replaced by new Basel III leverage ratio for jurisdictions that adopt Basel III, once that indicator is active. Regulatory Tier 1 capital to assets is encouraged in the SDDS and required in the SDDS Plus.
  - I16 & I17 – Gross asset and liability positions in financial derivatives to capital: total regulatory capital replaces Tier 1 capital; alternatively, as numerator is a balance sheet item, balance sheet capital may also be used.
  - I25 – Net Open Position in Equities to Capital: deleted due to limitations of source data and very low reporting rate.
- New capital-based FSIs:
  - New CET1-based solvency FSI (CET1 to RWA) for DTs adopting Basel III; BCBS collects this indicator; part of the core set. Jurisdictions not adopting Basel III are not to report this indicator.
  - New Basel III-consistent leverage indicator to be introduced for adopters once BCBS instructs supervisors to start monitoring; numerator = regulatory Tier 1 capital; denominator includes on-balance sheet items with add-ons and off-balance sheet items; leverage indicator will be included in the core set. Jurisdictions not adopting Basel III should continue compiling I13 defined as Tier 1 capital to balance sheet assets.

### PROFITABILITY AND PROVISIONS
- I07 – Return on Equity (ROE): option of using Tier 1 capital is eliminated; denominator now is total balance sheet capital and reserves only; average balance sheet capital continues to be used.
- Provisions to NPLs: currently included in GFSR tables; will be added to revised list of core FSIs for DTs; data series derived from underlying series used for I03—NPLs net of provisions to capital.

### LIQUIDITY FSIs — LCR and NSFR alignment
- Basel III liquidity standards introduced: Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR); both have internationally harmonized parameters with some national discretion.
- LCR:
  - Intended to promote resilience over a thirty-day horizon.
  - Definition: stock of high-quality liquid assets / total net cash outflows over 30 calendar days under stress.
  - High-quality liquid assets per Basel III characteristics; total net cash outflows = total expected cash outflows minus total expected cash inflows capped at 75 percent of total expected cash outflows.
  - After observation period, to be introduced in January 2015.
  - LCR will be included in the core set for jurisdictions that fully adopt Basel III LCR and will replace I11 liquid assets to short-term liabilities; for non-adopters, I11 remains as liquid assets to short-term liabilities.
- NSFR:
  - Defined as available amount of stable funding relative to required stable funding; must be greater than 100 percent.
  - Promotes medium and long-term funding.
  - NSFR will be included in the core set when jurisdictions adopt Basel III NSFR; non-adopters do not report this FSI.

### DATA AGGREGATION, BREAKS, AND DISCLOSURE
- Implementation of Basel III may co-exist with Basel II/Basel I; guidance provided for aggregating capital data across different Basel standards (aggregation formulas preserved above).
- Introduction of Basel III concepts will result in time series breaks; STA will publish a “frequently asked questions” note providing guidance.
- Countries should clearly indicate breaks in time series in published data and metadata.
- STA will inform FSIRG ahead of changes to IMF’s FSI website to reflect the new FSI list and definitional changes.

### FSI REPORTING STATISTICS AND TABLE 2 (end-July 2013 counts by indicator and capital definition)
- Number of FSI reporters:
  - For July 2011 the number of FSIs reporters was 63.
  - For July 2013 the number of FSIs reporters was 80.
- Table 2. Capital Definitions Used by FSI Reporters, end-July 2013 (counts by indicator and capital definition)
  - I 003: Tier1 8; Balance sheet capital 39; Regulatory capital 29; Not reported 0; No metadata 4
  - I 007: Tier1 10; Balance sheet capital 62; Regulatory capital 6; Not reported 0; No metadata 2
  - I 012: Tier1 10; Balance sheet capital 19; Regulatory capital 33; Not reported 17; No metadata 1
  - I 013: Tier1 13; Balance sheet capital 49; Regulatory capital 8; Not reported 8; No metadata 2
  - I 014: Tier1 7; Balance sheet capital 8; Regulatory capital 29; Not reported 36; No metadata 0
  - I 016: Tier1 6; Balance sheet capital 26; Regulatory capital 6; Not reported 38; No metadata 4
  - I 017: Tier1 6; Balance sheet capital 27; Regulatory capital 6; Not reported 38; No metadata 3
  - I 025: Tier1 4; Balance sheet capital 7; Regulatory capital 16; Not reported 51; No metadata 2

### OTHER FINANCIAL CORPORATIONS (OFCs) — subsector split and FSIs
- OFC subsector split into four subsectors for better analysis and FSI compilation:
  - MMFs (money market funds)
  - ICs (insurance corporations, including life and non-life and reinsurers)
  - PFs (pension funds established to provide retirement benefits)
  - Other OFCs (other nonbank financial intermediaries, investment funds other than MMFs, trust funds, hedge funds, financial auxiliaries, etc.)
- I26 (OFC assets percent of total financial system assets) and I27 (OFC assets percent of GDP) will be kept and subsector splits added:
  - FSI 26 OFC assets (percent of total financial system assets): MMF assets; IC assets; PF assets; Other OFC assets (each as percent of total financial system assets)
  - FSI 27 OFC assets (percent of GDP): MMF assets; IC assets; PF assets; Other OFC assets (each as percent of GDP)
- Consolidation basis for new OFC subsector FSIs: follow basis used for I26, either cross-border consolidated or domestic consolidated depending on data availability and presence of significant branches/subsidiaries abroad.
- New OFC FSIs follow broadly the DT framework but are included in the additional FSI set to maintain parsimony given heterogeneity and data limitations.

### NEW FSIs FOR MMFs, ICs, PFs, AND OTHER OFCs
- MMFs — new indicators (Table 5):
  - Asset quality: Sectoral distribution of investments (percent of total investments) — Central bank; DTs; OFCs; General government; NFCs; Non residents
  - Liquidity: Maturity distribution of investments (percent of total investments) — 1-30 days; 31-90 days; >90 days
  - Rationale: capture asset allocation and maturity transformation risks; monitor exposures to DTs and potential run vulnerabilities.
- ICs — new indicators (Table 6):
  - Capital: Shareholder equity to invested assets
  - Reinsurance issues: Total premium income minus premium ceded by primary insurers to total premium income (risk retention ratio)
  - Earnings and profitability: Return on assets (ROA); Return on equity (ROE)
  - Process note: discussed and agreed with the IAIS Secretariat in January 2013.
- PFs — new indicators (Table 7):
  - Liquidity ratio: Liquid assets to estimated pension payments in the next year
  - Earnings and profitability: ROA
  - Rationale: monitor adequacy of liquid assets for near-term pension payments and investment-driven vulnerabilities.
- Other OFCs: not split further at this stage due to heterogeneity and data issues; national compilers encouraged to compile additional categories where material.

### CHANGES TO FSIs FOR NONFINANCIAL CORPORATIONS (NFCs)
- Additions and revisions:
  - New indicator “Earnings to interest expenses” added while keeping I30 “Earnings to interest and principal expenses.”
  - New “Liquidity ratio” added as complementary indicator: ratio of liquid assets to total assets.
  - New supplementary ratios to I28 “Total debt to equity”: “External debt to equity” and “Foreign currency debt to equity.”
  - New “NFC debt to GDP” added to measure leverage relative to GDP.
  - ROA added; I29 ROE retained.
- Deletions:
  - I32 “Number of bankruptcy proceedings initiated” dropped.
  - I31 “Net foreign exchange exposures to equity” dropped.

### CHANGES TO FSIs FOR HOUSEHOLDS (HHs)
- Reporting rate low; I34 has very low reporting due to data constraints.
- Additions/guidance:
  - New indicator: HH debt to gross disposable income of HHs — countries encouraged to use national accounts for numerator; to be analyzed with I33 and I34.
  - For I33 (HH debt to GDP) and I34 (HH debt service and principal payments to income): countries encouraged to use SNA sources where available; otherwise use banking sector sources and indicate in metadata.
- Deferred indicators not introduced at this stage: “HH equity to HH real estate value” and “Mortgage loan to home value” — encouraged for national compilation where feasible.

### REAL ESTATE FSIs AND HANDBOOKS
- Current real estate FSIs retained; RPPI will become a core indicator; the other three real estate indicators remain in the additional set.
- Work commenced on Handbook on Commercial Property Price Indices (CPPI); expected publication by end of 2015.
- Data collection status for RPPIs/BIS:
  - BIS has been collecting RPPI data from 48 countries.
  - As of end-July 2013, 29 countries report I037 (residential real estate price index) to the IMF, of which 26 countries are BIS RPPI reporters.
- Selected real estate-related FSI reporting totals (Number of reporting countries, total):
  - I037 Residential real estate prices (Percentage change/last 12 months): Jul-11 total 18; Jul-13 total 29.
    - Monthly: Jul-11 0; Jul-13 3
    - Quarterly: Jul-11 10; Jul-13 19
    - Annual/Semiannual/Other: Jul-11 8; Jul-13 7
  - I038 Commercial real estate prices (Percentage change/last 12 months): Jul-11 total 7; Jul-13 total 10.
    - Monthly: Jul-11 0; Jul-13 0
    - Quarterly: Jul-11 4; Jul-13 7
    - Annual/Semiannual/Other: Jul-11 3; Jul-13 3
  - I039 Residential real estate loans to total gross loans: Jul-11 total 31; Jul-13 total 42.
    - Monthly: Jul-11 2; Jul-13 3
    - Quarterly: Jul-11 21; Jul-13 33
    - Annual/Semiannual/Other: Jul-11 8; Jul-13 6
  - I040 Commercial real estate loans to total gross loans: Jul-11 total 20; Jul-13 total 30.
    - Monthly: Jul-11 1; Jul-13 1
    - Quarterly: Jul-11 15; Jul-13 25
    - Annual/Semiannual/Other: Jul-11 4; Jul-13 4

### CHANGES TO THE CURRENT FSI LIST — selected code-level changes
- Core FSIs for Deposit Takers:
  - I01, I02, I03 redefined to align with Basel III where adopted; I07 ROE denominator set to balance sheet capital and reserves only.
  - I10 Liquid assets to total assets: “Liquid assets” to be redefined in line with Basel III for jurisdictions that adopt Basel III.
  - I11 Liquid assets to short-term liabilities: Liquidity coverage ratio to be introduced for jurisdictions that adopt Basel III.
  - New solvency indicator (CET1 to RWA) and new NSFR to be defined when Basel III is adopted.
- Additional FSIs for Deposit Takers:
  - I14 Large exposures to capital — “Capital” to use total regulatory capital only.
  - I16 and I17 — “Capital” to use total regulatory capital or balance sheet capital as alternative.
  - I25 Net open position in equities to capital — Deleted.
  - New Credit growth to private sector — added to additional set.
- Additional FSIs for OFCs, NFCs, HHs, Market Liquidity, Real Estate Markets — see subsector and indicator changes preserved above (selected items listed).

*Source: INTRODUCTION and excerpts from “MODIFICATIONS TO THE CURRENT FSI LIST” (IMF, _111313b)._

### INTRODUCTION ...........................................................................................................

### INTRODUCTION

### Purpose and process
- Provides underpinning to the main policy paper “Modifications to the Current List of Financial Soundness Indicators (FSIs),” including rationale for amendments, introduction of new FSIs, and exclusion of certain FSIs.
- Reports work by the IMF’s Statistics Department (STA) in collaboration with the Financial Soundness Indicators Reference Group (FSIRG), international standard setting bodies, relevant IMF departments, FSI-reporting countries, and concerned international organizations.
- Revision driven by: the global financial crisis, adoption of the Basel III Accord, and the G-20 Data Gaps Initiative’s (DGI) Recommendation no. 2 to review the current FSI list.
- Draws from three STA position notes circulated to FSIRG and FSI-reporting countries; final position notes reflect comments received and were posted on a dedicated FSIRG website.

### Scope covered in this content unit
- Deposit takers (DTs): impact of Basel III on current FSIs; new capital-based and other indicators; other agreed issues with the FSIRG.
- Sections addressing: capital-based FSIs, liquidity FSIs, additional FSIs, and other issues for deposit takers.

### Key procedural point
- Breaks in time series are expected where jurisdictions implement different Basel accords simultaneously, but these breaks are not expected to be significant given the length of the transition period.

---

### DEPOSIT TAKERS

### Basel III and capital measures — summary of changes
- Basel III redefines elements included in total regulatory capital with greater emphasis on common equity.
- Tier 1 capital split into two components: Common Equity Tier 1 (CET1) and Additional Tier 1 (AT1).
- “Tier 2 capital will be harmonized, and Tier 3 capital instruments, available to cover market risks, will be eliminated.” (BIS, 2011, p. 2, Para. 9)
- Components of total regulatory capital shift toward equity capital (Tier 1) and away from subordinated debt (Tier 2).
- New Capital Conservation Buffer comprised solely of CET1 above the regulatory minimum with constraints on capital distribution when capital levels fall below specified ranges.
- New Countercyclical Capital Buffer to be met by CET1 only (BCBS reviewing possibility of accepting “other fully absorbing capital beyond CET1”).

### Regulatory capital details (preserve exact values and definitions)
- Under Basel II:
  - Tier 1 capital: primarily equity capital and freely available disclosed reserves.
  - Minimum Tier 1 capital ratio required: 4 percent.
- Under Basel III:
  - Tier 1 capital components:
    - CET1: common shares, retained earnings, accumulated other comprehensive income, other disclosed reserves.
    - AT1: subordinated instruments with no maturity and neither secured nor covered by a guarantee of the issuer.
  - Minimum CET1 capital ratio: increases from 3.5 percent in 2013 to 4.5 percent in 2015.
  - Minimum total Tier 1 capital ratio: increases from 4.5 percent in 2013 to 6 percent in 2015.
  - Regulatory adjustments generally applied when calculating CET1.
  - Aggregation guidance: CET1 for the DT sector as a whole should be derived by aggregating Tier 1 capital calculated under Basel I and/or Basel II and CET1 calculated under Basel III for institutions using different Basel definitions.
- Tier 2 capital:
  - Under Basel II: undisclosed reserves, asset revaluation reserves on fixed assets and long-term holding of equities, general provisions up to 1.25 percent of risk-weighted assets, some hybrid instruments, long-term unsecured subordinated debt; limited to 100 percent of Tier 1 capital.
  - Under Basel III: includes only long-term (more than five years) subordinated, non-guaranteed instruments issued by the bank, plus general provisions up to 1.25 percent of credit risk-weighted assets, and excess of total eligible provisions up to a maximum of 0.6 percent of credit risk-weighted assets.
- Total regulatory capital:
  - Under Basel II: Tier 1, Tier 2, and Tier 3 capital; total capital adequacy ratio minimum 8 percent.
  - Under Basel III: Tier 3 eliminated; total regulatory capital comprises Tier 1 and Tier 2 as defined under Basel III; minimum total capital adequacy ratio remains 8 percent, with a minimum of 6 percent constituted by Tier 1 capital.

### Capital buffers and leverage ratio (exact phasing and levels)
- Capital Conservation Buffer:
  - Size: 2.5 percent of risk-weighted assets above the regulatory minimum capital requirement.
  - Composition: solely CET1.
  - Full effectiveness date: January 1, 2019.
  - Phasing: between January 2016 and end-2018 with initial requirement of 0.625 percent of risk-weighted assets and additional 0.625 percent each year to reach 2.5 percent in 2019.
  - Effect: designed to be flexible; affects dividend distributions but not operational capacity; increases minimum effective capital requirement to 10.5 percent in 2019 when combined with minimum capital requirements.
- Countercyclical Capital Buffer:
  - Implemented based on national authorities’ assessments of system-wide risks and geographical credit exposure of internationally active banks.
  - Treated as an extension of the conservation buffer.
  - Phased-in in parallel with the capital conservation buffer between January 1, 2016 and end-2018.
- Leverage Ratio:
  - Introduces a simple, transparent, non-risk-based leverage ratio as a supplementary measure.
  - Capital measure: based on new definition of Tier 1 capital.
  - Denominator: all balance sheet assets (with add-on for potential future exposures of derivatives and securities financing transactions) and off-balance sheet commitments including the listed items (commitments, unconditionally cancellable commitments, direct credit substitutes, acceptances, stand-by letters of credit, trade letters of credit, failed transactions, unsettled securities).
  - Calculation: average of the monthly leverage ratio over the quarter.
  - Set level: 3 percent.
  - Testing and migration: tested during a parallel run period between 2013 and 2017, with a migration to Pillar 1 foreseen for 2018.
  - Bank level disclosure of the leverage ratio and its components will start in January 2015.
  - BCBS intends to collect data during the transition period to track potential impact of using total regulatory capital and CET1.

---

### CAPITAL-BASED FSIs — REVISIONS AND SOLVENCY INDICATORS

### General approach to revised capital-based FSIs
- Revised FSI definitions should explicitly defer to Basel III definitions where jurisdictions adopt Basel III.
- Revisions aim to standardize definitions to enhance cross-country comparability while allowing limited flexibility in specific cases with strong analytical justification (e.g., domestic consolidation where foreign-owned branches are not required to hold regulatory capital).
- Proposed revisions discussed below reflect this approach.

### Specific solvency-related FSI revisions and specifications
- I01 – Total Regulatory Capital to Risk-Weighted Assets
  - No change beyond moving to the Basel III definition of total regulatory capital for jurisdictions that adopt Basel III.
  - Numerator: total regulatory capital (Tier 1 and Tier 2 as defined in Basel III).
- I02 – Regulatory Tier 1 Capital to Risk-Weighted Assets
  - No change beyond moving to the Basel III definition of Tier 1 capital for jurisdictions that adopt Basel III.
  - Inclusion of AT1 increases the minimum Tier 1 capital requirement to 6 percent; including the conservation buffer would bring this ratio to 8.5 percent (compared with the current minimum Tier 1 capital ratio of 4 percent).
- I03 – Non-performing Loans (NPLs) Net of Provisions to Capital
  - No change beyond moving to the Basel III definition of total regulatory capital for jurisdictions that adopt Basel III.
  - Intended to measure potential impact on capital of NPLs.
  - Preferred denominator: total regulatory capital; flexibility allowed for countries to use balance sheet capital when domestic consolidation (DC) is used and foreign-owned branches are not required to hold regulatory capital.
- I12 – Net Open Position in Foreign Exchange to Capital
  - Option of using Tier 1 capital is eliminated.
  - Denominator: total regulatory capital only.
  - Classified as solvency-related indicator.
- I14 – Large Exposures to Capital
  - Option of using Tier 1 capital is eliminated.
  - Denominator: total regulatory capital only.
  - Intended to identify vulnerabilities arising from concentration of credit risk.

---

*Source: INTRODUCTION, Modifications to the Current FSI List, November 13, 2013.*

### 23.      I16 – Gross Asset Positions in Financial Derivatives to Capital. Total regulatory capital

### 23. I16 – Gross Asset Positions in Financial Derivatives to Capital. Total regulatory capital

### Derivatives and equity exposures
- I16 – Gross Asset Positions in Financial Derivatives to Capital:
  - Total regulatory capital replaces Tier 1 capital.
  - Indicator aimed at measuring exposures relative to capital; total regulatory capital is to be used as the denominator.
  - Alternatively, as the numerator is a balance sheet item, balance sheet capital may also be used.
- I17 – Gross Liability Positions in Financial Derivatives to Capital:
  - Total regulatory capital replaces Tier 1 capital.
  - Indicator aimed at measuring exposures relative to capital; total regulatory capital is to be used as the denominator.
  - Alternatively, as the numerator is a balance sheet item, balance sheet capital may also be used.
- I25 – Net Open Position in Equities to Capital:
  - Deleted from the revised list of FSIs as recommended by the FSIRG due to limitations of source data and very low reporting rate.

### Leverage indicators and I13
- I13 – Capital to Assets:
  - Moved to the core set.
  - Calculation revised to use Tier 1 capital as numerator and total assets (financial and nonfinancial) as denominator.
  - Option of using balance sheet capital is eliminated.
  - To be replaced by the new Basel III leverage ratio for jurisdictions that adopt Basel III, once that indicator is active.
  - Regulatory Tier 1 capital to assets is encouraged in the SDDS and required in the SDDS Plus.
  - Rationale for revision:
    - (i) Basel III regulatory focus on the leverage ratio;
    - (ii) costs and benefits of keeping I13 after the new leverage ratio is included;
    - (iii) need to maintain a parsimonious approach by including only one leverage ratio in the FSI list.

### Footnote on Basel III leverage ratio monitoring and studies (preserved text)
- For the leverage ratio:
  - The monitoring period began on January 2011.
  - The parallel run period will start on January 2013 and will run until January 2017.
  - The disclosure period at bank level will start in January 2015.
  - The Basel Committee will test a minimum Tier 1 leverage of 3 percent during the parallel period from January 1, 2013 to January 1, 2017.
  - The BCBS is also conducting a quantitative impact study (QIS) on the Basel III framework focused on changes to bank capital ratios under the new capital and liquidity requirements.
  - The QIS results are available for June 2011, December 2011 and June 2012.
  - A BCBS progress report on Basel III implementation was published in April 2013.

*Box 1: Dissemination of FSIs and the Fund’s Data Standards Initiatives (highlights)*
- SDDS:
  - Established in 1996.
  - Purpose: guide IMF members in provision and dissemination of economic and financial data.
  - As of September 2013, the SDDS has 71 subscribers.
- SDDS Plus:
  - Approved February 2012 at the Eighth Review.
  - Third and highest tier, aimed at countries with systemically important financial systems; open to all SDDS subscribers.
  - Expected to be launched in Fiscal Year 2014.
- SDDS encourages dissemination (quarterly periodicity and quarterly timeliness) of the following seven FSIs:
  - 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.
- SDDS Plus requires dissemination of the first six FSIs above (i–vi) and residential real estate prices; it does not require net open position in foreign exchange to capital.

### Profitability indicator revision
- I07 – Return on Equity (ROE):
  - Option of using Tier 1 capital is eliminated.
  - Denominator now is total balance sheet capital and reserves only.
  - Average balance sheet capital continues to be used.
  - Rationale: balance sheet capital is the most common measure used by the financial industry to compare profitability.

### New capital-based FSIs (Solvency and Leverage)
- Solvency:
  - New CET1-based solvency FSI for DTs introduced (CET1 to RWA) for jurisdictions that adopt Basel III.
  - BCBS already collects this indicator; costs to countries should not be significant.
  - New indicator complementary to current I02 and part of the core set.
  - Jurisdictions that do not adopt Basel III are not to report this indicator.
- Leverage:
  - Basel III leverage ratio relies on new definition of regulatory Tier 1 capital and on an exposure measure (includes on-balance sheet items with add-ons for potential future exposures of derivatives and securities financing transactions, and off-balance sheet items).
  - New leverage indicator consistent with Basel III will be introduced for jurisdictions that adopt Basel III once BCBS informs national supervisors to start monitoring this ratio.
  - New indicator will use regulatory Tier 1 capital as the numerator.
  - Adopting fully the Basel III definitions implies including off-balance sheet items in the denominator.
  - Jurisdictions that do not adopt Basel III should continue compiling FSI I13 defined as Tier 1 capital to balance sheet assets.
  - The leverage indicator will be included in the core set of FSIs.

### Capital conservation buffer and countercyclical capital buffer
- If Basel III is adopted:
  - I02 should be calculated taking the entirety of CET1, which would include the capital conservation buffer and countercyclical buffers to the extent deposit-takers are required to maintain them.
  - No specific indicators based solely on the capital conservation buffer or countercyclical buffer will be introduced to the FSI list at this time.

### Liquidity FSIs and Basel III liquidity standards
- Basel III liquidity standards introduced:
  - Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR).
  - Both comprise internationally harmonized parameters with some national discretion.
  - Home supervisory parameters should apply to all entities being consolidated.
- LCR:
  - Intended to promote resilience to liquidity disruptions over a thirty-day horizon.
  - High-quality liquid assets must equal or exceed highly-stressed one-month cash outflows.
  - After observation period, to be introduced in January 2015.
  - Definition: stock of high-quality liquid assets / total net cash outflows over 30 calendar days under stress.
  - High-quality liquid assets: assets easily and immediately convertible into cash at little or no loss of value per Basel III characteristics and operational requirements.
  - Total net cash outflows: total expected cash outflows minus total expected cash inflows in specified stress scenario for 30 calendar days; inflows capped at 75 percent of total expected cash outflows.
- NSFR:
  - Promotes medium and long-term funding.
  - Defined as available amount of stable funding relative to required stable funding; must be greater than 100 percent.
  - Provides a minimum enforcement mechanism to complement LCR.

### Changes and additions to liquidity FSIs
- Liquidity coverage ratio (LCR):
  - Will be included in the core set for jurisdictions that fully adopt Basel III LCR.
  - Will replace I11 liquid assets to short-term liabilities.
  - For jurisdictions not adopting Basel III, I11 remains defined as liquid assets to short-term liabilities.
- Net Stable Funding Ratio (NSFR):
  - Will be included in the core set when jurisdictions adopt Basel III NSFR.
  - Jurisdictions that do not adopt Basel III do not report this FSI.

### Additional FSIs
- New FSI for DTs: credit growth to the private sector:
  - Added to the additional set of FSIs.
  - Calculated as annual growth rate of nominal loans to the private sector (private nonfinancial corporations and households).
  - Rationale: captures emerging systemic risks; can serve as a forward-looking indicator of potential asset quality problems and vulnerabilities.
  - Loans to public non-financial corporates are excluded.

### NPLs and provisions
- I03 – NPL Net of Provisions to Capital:
  - Current FSICG recommends use of a broader concept of loans for gross loans, NPLs, and NPLs net of specific provisions; gross loans and NPLs measured at nominal value gross of specific provisions.
  - Fund staff proposes national authorities continue to use the current definition of NPLs and provisions for loan losses in FSICG when compiling I03 (consistent with supervisory concepts).
- Provisions to NPLs:
  - Currently included in GFSR tables.
  - Will be added to revised list of core FSIs for DTs.
  - Data series derived from underlying series used for I03—NPLs net of provisions to capital.

### Data aggregation for supervisory-based capital (summary of recommended approach)
- Implementation of Basel III may co-exist with Basel II/Basel I; FSIRG requested guidance on aggregating capital data across different Basel standards.
- Staff’s recommended aggregation approach (sectoral aggregation across Basel standards):
  - Sectoral CET1 = Basel I Tier 1 + Basel II Tier 1 + Basel III CET1–supervisory deductions
  - Sectoral Tier 1 = Basel I Tier 1 + Basel II Tier 1 + Basel III Tier 1 (Tier1 (CET1 + AT1) – supervisory deductions)
  - Sectoral Tier 2 = Basel I Tier 2 + Basel II Tier 2 + Basel III Tier 2 (Tier 2 – supervisory deductions)
  - Sectoral Tier 3 (if applicable) = Basel I Tier 3 + Basel II Tier 3
  - Sectoral supervisory deductions = Basel I supervisory deductions + Basel II supervisory deductions + Basel III supervisory deductions
  - Sectoral Total Regulatory Capital = Sectoral Tier 1 + Sectoral Tier 2 + Sectoral Tier 3 (if applicable) – Sectoral supervisory deductions
- Countries should indicate in metadata if they aggregate using different Basel accords and provide number of deposit-takers and percent share of capital compiled using each Basel accord, if possible.

### Breaks in time series and related issues
- Introduction of Basel III concepts will result in time series breaks; instruments and supervisory deductions change affecting comparability of historical series.
- STA will publish a “frequently asked questions” note providing guidance to users on changes and revisions.
- Countries should clearly indicate breaks in time series in published data and metadata.
- STA will inform the FSIRG ahead of changes to the IMF’s FSI website to reflect the new FSI list and definitional changes.

- Table 2. Capital Definitions Used by FSI Reporters, end-July 2013 (counts by indicator and capital definition)
  - I 003: Tier1 8; Balance sheet capital 39; Regulatory capital 29; Not reported 0; No metadata 4
  - I 007: Tier1 10; Balance sheet capital 62; Regulatory capital 6; Not reported 0; No metadata 2
  - I 012: Tier1 10; Balance sheet capital 19; Regulatory capital 33; Not reported 17; No metadata 1
  - I 013: Tier1 13; Balance sheet capital 49; Regulatory capital 8; Not reported 8; No metadata 2
  - I 014: Tier1 7; Balance sheet capital 8; Regulatory capital 29; Not reported 36; No metadata 0
  - I 016: Tier1 6; Balance sheet capital 26; Regulatory capital 6; Not reported 38; No metadata 4
  - I 017: Tier1 6; Balance sheet capital 27; Regulatory capital 6; Not reported 38; No metadata 3
  - I 025: Tier1 4; Balance sheet capital 7; Regulatory capital 16; Not reported 51; No metadata 2

### Other Financial Corporations (OFCs): split and subsectors
- Rationale: OFCs are diverse; need to disaggregate into subsectors for better analysis and FSI compilation.
- OFC subsector split into four subsectors:
  - 1 MMFs:
    - Collective investment schemes that raise funds by issuing shares or units to the public.
    - Proceeds invested primarily in money market instruments, MMF shares or units, transferable debt instruments with residual maturity not more than one year, bank deposits and instruments that pursue a rate of return approaching interest rates of money market instruments.
  - 2 ICs:
    - Principal function: provide life and nonlife insurance to individual or institutional units or groups.
    - For FSIs, include life and non-life ICs and reinsurers.
  - 3 PFs:
    - Established to provide retirement benefits for specific groups of employees.
    - Subsector should include PFs constituted as separate from units that created them.
    - Social security schemes (part of general government) are excluded.
  - 4 Other OFCs:
    - Covers all OFCs not included in MMFs, ICs, PFs.
    - Includes other nonbank financial intermediaries (SPVs, finance companies, financial leasing companies not classified as DTs), investment funds (other than MMFs), trust funds, hedge funds, financial auxiliaries, etc.
- National compilers may compile FSIs for additional categories in the other OFC subsector where appropriate.

*Italicized source attribution: IMF, "MODIFICATIONS TO THE CURRENT FSI LIST" (excerpts from _111313b - 23. I16 – Gross Asset Positions in Financial Derivatives to Capital. Total regulatory capital).*

### 46.      The current set of FSIs includes two indicators for OFCs—assets to total financial

### _111313b - 46.      The current set of FSIs includes two indicators for OFCs—assets to total financial

### OFC FSIs (I26 and I27) — scope and rationale
- The current set of FSIs includes two indicators for OFCs—assets to total financial system assets (I26) and assets to GDP (I27).
- The numerator for both indicators is OFCs’ total financial assets.
- Purpose:
  - I26: measure the importance of OFCs within the domestic financial system.
  - I27: measure the importance of OFCs within the domestic economy.
- Fund staff view: these FSIs remain useful to monitor broad developments in the OFCs sector, especially in countries where OFCs are still in an embryonic stage.
- Decision: these two FSIs for the OFCs sector will be kept as a whole and subsector splits added (see Table 4).
- Definition for compilation as a whole: the OFCs sector would include all financial corporations that are not classified as DTs, including MMFs, ICs, PFs, other financial intermediaries (other than MMFs, ICs, and PFs), and financial auxiliaries.
- Consolidation basis for new OFC subsector FSIs: follow that used for compiling I26, which could be either on a cross-border consolidated basis or a domestic consolidated basis depending on data availability and on whether there exist significant branches and/or subsidiaries’ activities abroad.

- Table 4. FSI 26 and FSI 27 for the OFCs Sector and its Subsector Splits:
  - FSI 26 OFC assets (percent of total financial system assets)
    - MMF assets (percent of total financial system assets)
    - IC assets (percent of total financial system assets)
    - PF assets (percent of total financial system assets)
    - Other OFC assets (percent of total financial system assets)
  - FSI 27 OFC assets (percent of GDP)
    - MMF assets (percent of GDP)
    - IC assets (percent of GDP)
    - PF assets (percent of GDP)
    - Other OFCs assets (percent of GDP)

### New FSIs for OFC subsectors — general approach
- Framework follows broadly that for the DT sector, intended to cover aspects of capital adequacy, asset quality, earnings and profitability, and liquidity conditions where applicable.
- Methodology for compiling new FSIs for OFCs will be developed and included in the revised FSICG.
- Fund staff adopted a parsimonious approach in proposing new FSIs for OFCs due to:
  - Differences in level of development in OFC subsectors across countries.
  - Variations in data reporting practices.
  - Limited data availability in many countries.
- New FSIs for OFCs are included in the additional FSI set.

### New FSIs for MMFs — systemic considerations and indicators
- Systemic relevance of MMFs varies across countries.
- MMF features:
  - Investment objectives and types of investors vary; investors considered shareholders entitled to receive value of each share with accumulated income.
  - Pricing: many MMFs determine price by NAV divided by number of shares; constant NAV MMFs exist with predetermined yield.
  - Investments typically not covered by deposit insurance.
  - Typical investments: commercial papers, certificates of deposits, repurchase agreements; maturity and issuing sectors can affect asset quality.
  - MMFs provide short-term funding to DTs; runs on MMFs could impact DTs’ short-term liquidity.
  - Constant NAV MMFs could be prone to runs if significant shortfall emerges between value of underlying assets and obligations; feedback loops possible if DTs invest in MMFs.
  - Maturity transformation: some MMFs’ assets have maturities more than 90 days while share account balances may be withdrawn on demand.
- New MMF FSIs added to assess asset quality and liquidity (Table 5).

- Table 5. New FSIs for MMFs:
  - Assets quality: Sectoral distribution of investments (percent of total investments)
    - Central bank
    - DTs
    - OFCs
    - General government
    - NFCs
    - Non residents
  - Liquidity: Maturity distribution of investments (percent of total investments)
    - 1-30 days
    - 31-90 days
    - >90 days

- Rationale and usage:
  - Asset quality indicator: shows MMFs’ assets distributed by debtor sectors; useful because different debtors have different risk profiles; captures asset reallocation and linkages between MMFs and DTs.
  - Liquidity indicator: monitors asset maturity using remaining maturity; a large concentration of assets with maturity more than 90 days could signal potential liquidity vulnerabilities.

### New FSIs for ICs — coverage and indicators
- New FSIs for ICs cover three categories: capital adequacy, reinsurance issues, and earnings and profitability (Table 6).
- Table 6. New FSIs for ICs:
  - Capital: Shareholder equity to invested assets
  - Reinsurance issues: Total premium income minus premium ceded by primary insurers to total premium income
  - Earnings and profitability:
    - Return on assets (ROA)
    - Return on equity (ROE)
- Notes:
  - Capital indicator (shareholders equity to invested assets) measures capital strength to absorb losses.
  - Reinsurance indicator (risk retention ratio) measures the risk passed on to reinsurers; low and declining levels may signal financial difficulties of primary insurers.
  - Profitability indicators: ROA measures ICs’ efficiency in using assets; ROE measures efficiency in using capital.
- Process note: New FSIs for ICs were discussed and agreed with the IAIS Secretariat in January 2013.

### New FSIs for PFs — key vulnerabilities and indicators
- PFs can affect financial stability through investment behavior; hold a large proportion of financial assets; sizable reallocations could have macro-financial implications.
- Liquidity concern: adequacy of liquid assets to cover future pension payments.
  - Proposed liquidity ratio: Liquid assets to estimated pension payments in the next year.
  - Consideration: most pension schemes receive regular cash inflows which reduce liquidity risk; revisions to FSICG will consider this.
- Profitability: ROA proposed to measure efficiency in using assets.
- Table 7. New FSIs for PFs:
  - Liquidity ratio: Liquid assets to estimated pension payments in the next year
  - Earnings and profitability: ROA

### Other OFCs — heterogeneity and data issues
- Other OFCs engage in a broad range of financial intermediary and financial auxiliary activities; subsector may include very different types of institutions.
- Given limited data availability and comparability issues, other OFCs will not be split further at this stage.
- National compilers encouraged to calculate FSIs for additional categories within other OFCs for national analysis and publication if these categories account for a significant share of their financial systems.

### Changes to FSIs for NFCs (non-financial corporations)
- New additions and revisions:
  - “Earnings to interest expenses” is added as a new indicator while keeping current FSI I30 “earnings to interest and principal expenses.” Rationale: avoid mislabeling when principal expense data unavailable.
  - “Liquidity ratio” added as complementary indicator: ratio of liquid assets to total assets (same ratio as liquidity asset ratio for deposit-takers); serves as proxy for the current ratio due to difficulties compiling short-term liabilities on a remaining maturity basis.
  - “External debt to equity” and “foreign currency debt to equity” ratios added as supplementary ratios to FSI I28 “total debt to equity.” Rationale: useful for monitoring NFCs’ exposures by residency of creditors and reliance on foreign currency borrowing.
    - Data sources: external debt statistics and International Investment Position may provide external debt; SRFs may provide foreign currency debt from central bank, resident DTs, and OFCs.
  - “NFC debt to GDP” added to measure NFCs’ leverage relative to GDP; to be analyzed together with I28 “total debt to equity.”
  - ROA added; together with existing I29 ROE provides indications on management effectiveness; ROA may better capture profitability where debt is converted into equity.
- Deletions:
  - FSI I32 “number of bankruptcy proceedings initiated” is dropped due to comparability limitations across national bankruptcy legislation and system size.
  - FSI I31 “Net foreign exchange exposures to equity” is dropped because it is the least reported FSI.

### Changes to FSIs for Households (HHs)
- Reporting rate of HH FSIs has been low; I34 (“Household debt service and principal payments to income”) has very low reporting due to data collection constraints outside banking sector.
- Additions and guidance:
  - New indicator: HH debt to gross disposable income of HHs — intended to assess HH debt sustainability; countries encouraged to compile numerator using national accounts data; a growing or high ratio may signal vulnerabilities; should be analyzed with current I33 and I34.
  - For current I33 (HH debt to GDP): countries encouraged to compile numerator using national accounts data for broader coverage; countries without national accounts HH debt should use banking sector sources and indicate so in metadata.
  - For current I34 (HH debt service and principal payments to income): countries encouraged to use national accounts sources for numerator where available; otherwise use banking sector sources and indicate in metadata.
- Deferred indicators:
  - “HH equity to HH real estate value” and “mortgage loan to home value” suggested by FSIRG but not introduced at this stage due to feasibility, cost, comparability, and interpretability concerns.
    - HH equity to real estate value issues: costly to compile at sectoral level; affected by lack of active secondary housing markets; indicator may be difficult to interpret because rising house prices can increase equity but also leverage.
    - Mortgage loan to home value: used as macroprudential tool in some countries; compilation at sectoral level may be costly and partial/average nature may be hard to interpret and not comparable across countries.
  - National compilers with sufficient data are encouraged to compile these indicators for national analysis and dissemination.

### FSIs for Real Estate Markets
- Importance: indices of real estate prices are highly desirable for macroprudential analysis because DTs may have large direct and indirect exposures to real estate.
- Current additional FSIs for real estate markets:
  - I37—Residential real estate price index
  - I38—Commercial real estate price index
  - I39—Residential real estate loans to total loans
  - I40—Commercial real estate loans to total loans
- FSIRG reaffirmed importance of I37 and I38 while noting compilation difficulties and concerns about quality when indices are produced by commercial sources rather than official statistical agencies.
- In the context of the G-20 DGI (Recommendation no. 19), a Handbook on Residential Property Price Indices (RPPI) has been published (Inter-Secretariat Working Group on Price Statistics, chaired by EUROSTAT) to foster development of homogeneous real estate statistics.
- Data collection status:
  - BIS has been collecting data on RPPI from 48 countries.
  - As of end-July 2013, 29 countries report I37 (residential real estate price index) to the IMF, of which 26 countries are BIS RPPI reporters.

*Source: _111313b - 46.      The current set of FSIs includes two indicators for OFCs—assets to total financial system assets (extracted content).*

### 79.      Work has also commenced on the development of a Handbook on Commercial

### _111313b - 79.      Work has also commenced on the development of a Handbook on Commercial

### Handbook on Commercial Property Price Indices (CPPI)
- Work has commenced on the development of a Handbook on Commercial Property Price Indices (CPPI) to address statistical issues related to commercial estate prices.
- The CPPI Handbook is expected to be published by the end of 2015.

### Treatment of real estate FSIs
- The current FSIs for real estate market will be retained as they remain useful for monitoring broad developments in real estate markets and for macroprudential analysis.
- The RPPI will become a core indicator.
- The other three real estate indicators should remain in the additional set.

### Key statistics from FSI reporting (selected)
- Number of FSI reporters:
  - For July 2011 the number of FSIs reporters was 63.
  - For July 2013 the number of FSIs reporters was 80.
- Selected real estate-related FSI reporting totals (Number of reporting countries, total):
  - I037 Residential real estate prices (Percentage change/last 12 months): Jul-11 total 18; Jul-13 total 29.
    - Monthly: Jul-11 0; Jul-13 3
    - Quarterly: Jul-11 10; Jul-13 19
    - Annual/Semiannual/Other: Jul-11 8; Jul-13 7
  - I038 Commercial real estate prices (Percentage change/last 12 months): Jul-11 total 7; Jul-13 total 10.
    - Monthly: Jul-11 0; Jul-13 0
    - Quarterly: Jul-11 4; Jul-13 7
    - Annual/Semiannual/Other: Jul-11 3; Jul-13 3
  - I039 Residential real estate loans to total gross loans: Jul-11 total 31; Jul-13 total 42.
    - Monthly: Jul-11 2; Jul-13 3
    - Quarterly: Jul-11 21; Jul-13 33
    - Annual/Semiannual/Other: Jul-11 8; Jul-13 6
  - I040 Commercial real estate loans to total gross loans: Jul-11 total 20; Jul-13 total 30.
    - Monthly: Jul-11 1; Jul-13 1
    - Quarterly: Jul-11 15; Jul-13 25
    - Annual/Semiannual/Other: Jul-11 4; Jul-13 4

*Source: IMF Statistics Department; For July 2011 the number of FSIs reporters was 63. For July 2013 the number of FSIs reporters was 80.*

### Appendix V. Current FSI List

### Appendix V. Current FSI List

### DTs: Core Set
- 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 DTs. Capital adequacy and availability ultimately determine the degree of robustness of financial institutions to withstand shocks to their balance sheets.
- 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 DTs based on the core capital concept of the Basle Committee on Banking supervision (BCBS).
- NPLs net of provisions to capital
  - This FSI is calculated by taking the value of 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.
- NPLs 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.
- 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 DTs 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.

### DTs: Additional Set (selected indicators and definitions)
- 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.
- 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.
- 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 DTs.
- 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 DTs’ financial derivative asset positions relative to capital.
- 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 DTs’ financial derivative liability positions relative to capital.
- 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 DTs’ income from financial market activities, including currency trading—that is, it measures the DTs’ reliance on market-related activity to generate profits.
- 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.
- 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 DTs. 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.
- Spread between highest and lowest interbank rate
  - This FSI measures the spread between the highest and lowest interbank rates (SIRs) charged to DTs 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.
- 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.
- 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.
- Foreign-currency-denominated liabilities to total liabilities
  - This FSI is calculated using the foreign currency liabilities as the numerator and total debt plus financial derivative liabilities less financial derivative assets as the denominator. It is an asset quality indicator, which 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 DTs are taking greater risks.
- Net open position in equities to capital
  - This FSI is calculated by using DTs’ 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 DTs’ equity risk exposure compared with capital.

### OFCs: Additional Set
- 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 DTs, OFCs, nonfinancial corporations, HHs, the general government, and the central bank. This FSI measures the relative importance of OFCs within the domestic financial system.
- 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.

### NFCs: Additional Set
- 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.
- ROE
  - 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.
- 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.
- 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.
- Number of bankruptcy proceedings initiated
  - 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.

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

### Market Liquidity: Additional Set
- 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.
- 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: Additional Set
- 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.
- Commercial real estate prices
  - As with residential real estate prices, there is currently limited international experience in constructing representative real estate price indices for the commercial sector.
- Residential real estate loans to total loans
  - This FSI is an asset quality ratio, which is intended to identify DTs’ 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.
- 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 residential real estate loans to total loans associated with a high ratio.

### Appendix VI. Changes to the Current FSI List (selected codes and changes)
- Core FSIs for Deposit Takers (codes and key changes)
  - I01 Regulatory capital to risk-weighted assets — “Regulatory capital” to be redefined in line with Basel III.
  - I02 Regulatory Tier 1 capital to risk-weighted assets — “Tier 1 capital” to be redefined in line with Basel III.
  - I03 Nonperforming loans net of provisions to capital — “Capital” to use total regulatory capital except for DC-based FSIs.
  - I04 Nonperforming loans to total gross loans — No change.
  - I05 Sectoral distribution of loans to total loans — No change.
  - I06 Return on assets — No change.
  - I07 Return on equity — “Equity” to use balance sheet capital and reserves only.
  - I08 Interest margin to gross income — No change.
  - I09 Noninterest expenses to gross income — No change.
  - I10 Liquid assets to total assets — “Liquid assets” to be redefined in line with Basel III for jurisdictions that adopt Basel III.
  - I11 Liquid assets to short-term liabilities — Liquidity coverage ratio to be introduced for jurisdictions that adopt Basel III.21
  - I12 Net open position in foreign exchange to capital — “Capital” to use total regulatory capital.
  - I13 Capital to assets — Move to the core set. “Capital” to use regulatory Tier 1 capital.22
  - New Solvency indicator (CET1 to RWA) — Underlying series to be defined in line with Basel III for jurisdictions that adopt Basel III.
  - New Net stable funding ratio — Underlying series to be defined in line with Basel III for jurisdictions that adopt Basel III.
  - New Provisions to NPLs — Underlying series to be defined in the revised FSICG.
  - Footnotes:
    - 21 LCR will replace this indicator, when Basel III will be fully adopted (see paragraph 35).
    - 22 Basel III leverage ratio will be introduced when the BCBS informs national supervisors to start monitoring this ratio (see paragraph 31).

- Additional FSIs for Deposit Takers (selected items)
  - I14 Large exposures to capital — “Capital” to use total regulatory capital only.
  - I15 Geographical distribution of loans to total loans — No change.
  - I16 Gross asset position in financial derivatives to capital — “Capital” to use total regulatory capital or balance sheet capital as an alternative.
  - I17 Gross liability position in financial derivatives to capital — “Capital” to use total regulatory capital or balance sheet capital as an alternative.
  - I18 Trading income to total income — No change.
  - I19 Personnel expenses to noninterest expenses — No change.
  - I20 Spread between reference lending and deposit rates (base points) — No change.
  - I21 Spread between highest and lowest interbank rates (base points) — No change.
  - I22 Customer deposits to total (noninterbank) loans — No change.
  - I23 Foreign-currency-denominated loans to total loans — No change.
  - I24 Foreign-currency-denominated liabilities to total liabilities — No change.
  - I25 Net open position in equities to capital — Deleted.
  - New Credit growth to private sector — Underlying series to be defined in the revised FSICG.

- Additional FSIs for Other Financial Corporations (selected changes)
  - I26 OFC assets (percent of total financial system assets) — Additional breakdowns: MMF assets (percent of total financial system assets); IC assets (percent of total financial system assets); PF assets (percent of total financial system assets); Other OFC assets (percent of total financial system assets).
  - I27 OFC assets (percent of GDP) — Additional breakdowns: MMF assets (percent of GDP); IC assets (percent of GDP); PF assets (percent of GDP); Other OFC assets (percent of GDP).
  - New Capital adequacy ICs — Underlying series to be defined in the revised FSICG.
  - New Reinsurance issues ICs — Underlying series to be defined in the revised FSICG.
  - New Earnings and profitability ICs — Return on assets; Return on equity. Underlying series to be defined in the revised FSICG.
  - New Liquidity ratio PFs — Underlying series to be defined in the revised FSICG.
  - New Earnings and profitability PFs — Underlying series to be defined in the revised FSICG.
  - New Sectoral distribution of investments for MMFs — Underlying series to be defined in the revised FSICG.
  - New Maturity distribution of investments for MMFs — Underlying series to be defined in the revised FSICG.

- Additional FSIs for Nonfinancial Corporations (selected changes)
  - I28 Total debt to equity — Add two supplementary ratios: external debt to equity and foreign currency debt to equity.
  - New Return on assets — Add this indicator.
  - I29 Return on equity — No change.
  - I30 Earnings to interest and principal expenses — No change.
  - New Earnings to interest expenses — Add this indicator with a view to addressing data limitation for compiling I30 in some countries, and to monitor interest coverage.
  - I31 Net foreign exchange exposure to equity — Deleted.
  - I32 Number of bankruptcy proceedings initiated — Deleted.
  - New Liquidity indicators — Current ratio; Liquidity ratio. Underlying series to be defined in the revised FSICG.
  - New NFC debt to GDP — Underlying series to be defined in the revised FSICG.

- Additional FSIs for Households (selected changes)
  - I33 Household debt to gross domestic product — SNA data may be used, or banking data for the numerator in the absence of SNA data.
  - I34 Household debt service and principal payments to income — SNA may be used, or banking data for the numerator in the absence of SNA data.
  - New Household debt to household disposable income — Underlying series to be defined in the revised FSICG.

- Additional FSIs for Market Liquidity (changes)
  - I35 Average bid-ask spread in the securities market — Deleted. Such information of high frequency is available from commercial sources.
  - I36 Average daily turnover ratio in the securities market — Deleted. Such information of high frequency is usually available from commercial sources.

- Additional FSIs for Real Estate Markets (codes and changes)
  - I37 Residential real estate prices (Percentage change/last 12 months) — No change.
  - I38 Commercial real estate prices (Percentage change/last 12 months) — No change.
  - I39 Residential real estate loans to total gross loans — No change.
  - I40 Commercial real estate loans to total gross loans — No change.

*Source: _111313b - Appendix V. Current FSI List*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2013/_111313b.pdf_