From-whom-to-whom presentation using Japan’s flow of funds accounts Working Party on Financial Statistics October 2011 Presenter: Yoshiko Sato Research and Statistics Department Bank of Japan

2/18 Contents Compilation of whom-to-whom (W-to-W) data Basic method Method for enhancement in loans - Use of “Detailed Data of FFA” Method for enhancement in debt securities Further challenges

Bank of Japan 3/18 Compilation of whom-to-whom data Importance of individual transactions data showing interconnectedness among sectors or intersectoral relationship (G20) Limitation of source data ・ Usually, it is difficult to obtain data reported on a W-to-W basis. Proposed framework for W-to-W matrix ・ EC, IMF, OECD, UN, and WB [2009], 2008SNA ・ IMF and ECB[2011], An Integrated Framework for Financial Flows and Positions on a Whom-to-Whom Basis ・ UNSD and ECB[2011],(draft) Handbook of National Accounting: Financial Production, Flows and Stocks in the System of National Accounts.

Bank of Japan 4/18 Compilation of whom-to-whom data Available source data on a W-to-W basis in Japan ・ “Detailed Data of FFA” on loans and deposits ・ It makes it possible to grasp who finances whom. Our approaches ・ First: Make a basic W-to-W matrix. ・ Next: Consider enhancement in loans by using Detailed Data of FFA. ・ Last: Consider enhancement in debt securities by specifying debtor sectors based on types of debt securities.

Bank of Japan 5/18 Basic method Balance sheet data format NFCOther sectorsSector total AssetLiab.AssetLiab.AssetLiab. Loans ３０６０７０４０１００ Debt Securities Shares Transaction Total NFC: Non Financial Corporations

Bank of Japan 6/18 Basic method Recompose the data, and pick up one item (e.g. Loans) NFCOthersSector Liabilities Total NFCOthersSector Assets Total Liab. Asset Loans Debt Securities Shares Transaction Total

Bank of Japan 7/18 Basic method Convert BS data into a W-to-W format Assumptions are made that financial assets of a certain instrument category are allocated to counterparty sectors in proportion to the share of liability of respective sectors for the same instrument category. NFCOther sectorsAssets Total NFC Other sectors Liabilities total ・ Do the same procedure for all the remaining items. Debtor→ Creditor ↓

Bank of Japan 8/18 Basic method Aggregate all the items into the full W-to-W matrix Currency and deposits Loans Debt securities Total W-to-W matrix Debtor→ Creditor ↓ (100mil. yen)

Bank of Japan 9/18 Method for enhancement in loans Use of Detailed Data of FFA in loans ・ W-to-W matrix compiled by the basic method is comprehensive but insufficient. It rests upon a resource allocation assumption and lacks any statistical evidence. Source data on a W-to-W basis, if available, should be used. ・ BOJ quarterly releases Detailed Data of FFA. It provides figures on which financial sector supplies what amount of loans to which sector. - Therefore, it can be used for enhancement of the basic matrix.

Bank of Japan 10/18 Method for enhancement in loans Loan table is improved (shaded area). (100mil. yen)

Bank of Japan 11/18 Method for enhancement in loans Analysis of the loan table ・ The size of nodes represents the total amount of assets and liabilities within sectors. ・ The thickness of lines represents the amount of exposures among sectors. ・ Interconnectedness through loans are weakened from 2000 to The volume of loans provided by ODC to NFC is decreased by 30% ODC ICPF OFC CB GG HH NFC 1990 ROW

Bank of Japan 12/18 Method for enhancement in loans Further analysis of the loan table; between ODC and ROW - Direction can be analyzed - The volume of loans between ODC and ROW increased from 2000 to 2010 ・ In 2010, ODC borrows more from ROW than in ・ ROW borrows less from ODC than in Interconnectedness is enhanced mainly because of the increase of borrowings of ODC from ROW, rather than that of ROW from ODC. Loans from ODC/ROW to ROW/ODC

Bank of Japan Method for enhancement in debt securities W-to-W matrix for debt securities (issued by resident) is compiled by specifying debtor sectors based on types of debt securities. 13/18 Types of debt securitiesDebtor sector CP (s-term), Bank debentures & Industrial securities (l-term) Financial institutions & nonfiancial corporation Treasury discount bills (s-term), Central government securities and FILP bonds (l-term) Central government & Fiscal Loan Fund Local government securitiesLocal governments Public corporation securitiesPublic corporation Structured-financing instrumentsStructured-financing special purpose companies and trusts

Bank of Japan Method for enhancement in debt securities In Japan’s FFA, some public corporations are classified in financial institutions, nonfinancial corporation or general government. Public corporation securities issued by those sectors are supposed to be issued by “Public corporation” sector in this matrix. The advantage of the method is that flow tables can be compiled. ・ In the basic method and in the method for enhancement in loans, flow tables cannot be compiled because of the difficulty in treating negative figures. 14/18

Bank of Japan Method for enhancement in debt securities – Positions – 15/18

Bank of Japan Method for enhancement in debt securities – Flows – 16/18

Bank of Japan Further challenges 17/18 Basic method ・ Transactions within non-residents are not covered by definition of a W-to-W framework. Therefore, the intra-sectoral transactions within ROW should be controlled to zero. Method for enhancement in loans ・ The difference of the valuation method should be reconciled. (FFA: market value basis, DD of FFA: book value basis) Method for enhancement in debt securities ・ The W-to-W matrix for debt securities has not yet been integrated into the basic and loan-enhanced matrix, because the composition of debtor sectors is asymmetric to creditor sectors (“Financial institutions & nonfinancial corporations” are not separated each other). ・ Additional W-to-W information by each type of securities is required.

Bank of Japan Further challenges 18/18 Basic method has limitations for illustrating actual intersectoral relationship. In order to make W-to-W matrix fully competent, steady efforts such as applying “Detailed Data of FFA” or utilizing carefully compiled W-to-W matrix for debt securities are critically important.

Bank of Japan Thank you for your attention