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The starting point of systemic risk analysis in a single country is typically the banking system. This is due to banks’ significant role in financial intermediation and maturity transformation, and their highly leveraged operations. The approach often taken at central banks and supervisory agencies is to identify systemic risks using disaggregated data, including information on the composition of banks’ assets and liabilities, maturity and currency mismatches, and other balance sheet and income metrics. These analyses attempt to capture systemic risks stemming from common exposures, interbank linkages, funding concentrations and other factors that may have a bearing on income, liquidity and capital adequacy conditions.
This approach does not, however, directly extend to the multi-country level. At least three additional challenges arise:
Section II of this paper briefly summarises the literature on systemic risk assessment, and highlights some of the unique challenges which arise in the global context. This discussion is followed by four examples of data-related challenges: (i) accurately measuring banks’ foreign asset exposures; (ii) measuring a borrower country’s reliance on credit from foreign banks; (iii) tracking banks’ cross-currency funding and maturity transformation activities; and (iv) capturing the endogenous interactions of asset and funding positions in scenario analyses. These examples demonstrate that many aspects of global systemic risk simply cannot be captured using existing data.
The final section discusses the most significant data limitations and provides a brief overview of international initiatives to deal with them. First, the ongoing G20 initiative to close data gaps has put forth 20 recommendations which call for improvements to bank level and aggregate statistics, a framework for the collection and sharing of these data across jurisdictions, and rules governing access and use of the data. The recommendations specifically highlight the need for more bank level data, including information on firm level bilateral linkages, banks’ organisational structures and broad breakdowns of banks’ total assets and liabilities (e.g. by instrument, counterparty country, counterparty sector, currency and residual maturity). Second, enhancements to the aggregate BIS international banking statistics, which cover a much wider universe of banks, are also moving forward. These enhancements will shed more light on how banks organise their operations across jurisdictions.