1. The Global Financial Crisis: What Are We Learning About Policy-Makers’ Data Needs? Tessa van der Willigen and Pedro Rodriguez Strategy, Policy, and Review Department IMF

2. Outline  What happened  Short-term actions  Better early warning in future  Data needs Disclaimer: I may stray outside SNA proper, but balance sheets are key...

3. What Happened? Background  Macroeconomic conditions: Low global interest rates, reflecting large external surpluses in key emerging markets and easy monetary policy Low global interest rates, reflecting large external surpluses in key emerging markets and easy monetary policy Very large increases in asset prices Very large increases in asset prices  Financial sector regulation: Rapid growth in “subprime” mortgages in US Rapid growth in “subprime” mortgages in US Repackaging into traded structured products Repackaging into traded structured products

4. What Happened? The Crisis  Correction in the US housing market  Fall in, and increased uncertainty in, the price of structured products  Financial institutions: made losses and sold assets made losses and sold assets began to hoard liquidity because of increased uncertainty (about values and counterparties) began to hoard liquidity because of increased uncertainty (about values and counterparties) reacted sharply to the collapse of Lehman Brothers reacted sharply to the collapse of Lehman Brothers

5. What Happened? International Linkages  Origins of the crisis in the US  Spillovers to Europe because of direct exposures and declines in wholesale funding  Emerging markets hit after the collapse of Lehman: The “decoupling” hypothesis was probably always optimistic The “decoupling” hypothesis was probably always optimistic Accelerated deleveraging Accelerated deleveraging

6. Getting the Crisis Under Control--I  Restoring confidence in mature financial systems: Providing short-term liquidity Providing short-term liquidity Removing damaged assets from banks’ balance sheets Removing damaged assets from banks’ balance sheets Recapitalizing banks Recapitalizing banks

7. Getting the Crisis Under Control--II  Dealing with capital flow reversals in emerging markets: Use reserve buffers Use reserve buffers Liquidity support (swap lines with major central banks, the IMF’s new Short-Term Liquidity Facility) Liquidity support (swap lines with major central banks, the IMF’s new Short-Term Liquidity Facility) Adjust as necessary Adjust as necessary Review contingency plans in case of banking sector problems Review contingency plans in case of banking sector problems

8. Getting the Crisis Under Control--III  Addressing the fiscal consequences of intervention in the financial system Ensure debt sustainability Ensure debt sustainability Develop an exit strategy Develop an exit strategy

9. Better Early Warning in Future--I  Better financial stability analysis: Risks were moved to off-balance sheet vehicles Risks were moved to off-balance sheet vehicles Risks moved to a burgeoning superstructure of complex marketable products and derivatives and became untraceable Risks moved to a burgeoning superstructure of complex marketable products and derivatives and became untraceable

10. Better Early Warning in Future--II  Better macroeconomic analysis: Need better identification of asset price bubbles Need better identification of asset price bubbles Need a better understanding of how concerned we should be about external imbalances Need a better understanding of how concerned we should be about external imbalances (e.g., the discrepancies between the development of US foreign assets and its current account)

11. Better Early Warning in Future--III  International financial linkages: We had far too little idea of countries’ exposures to other countries, different kinds of institutions, and different kinds of instruments We had far too little idea of countries’ exposures to other countries, different kinds of institutions, and different kinds of instruments

12. Data Needs—Fiscal  Accurate and transparent recording of the fiscal costs of intervention in the banking sector and implications for public debt the fiscal costs of intervention in the banking sector and implications for public debt contingent liabilities contingent liabilities

13. Data Needs—Financial Sector  A big agenda for regulators  Related, we also need better aggregate financial stability analysis  Considerable efforts in recent years: Balance sheet analysis Balance sheet analysis (the IMF’s Standardized Report Forms for Monetary and Financial Statistics cover banks, non-bank depository corporations, insurance companies, pension funds, investment funds, special purpose entities, etc.) Financial Soundness Indicators Financial Soundness Indicators (Coordinated Compilation Exercise; though these are lagging indicators)

14. Data Needs—Financial Sector, Ctd.  Importance of information on: Off balance sheet entities Off balance sheet entities Contingent exposures (derivatives) Contingent exposures (derivatives) Maturity of liabilities and assets Maturity of liabilities and assets Intrasectoral exposures/market structures Intrasectoral exposures/market structures Valuation Valuation

15. Data Needs—External Sector  We need: better analysis of the buildup of external vulnerabilities; and better analysis of the buildup of external vulnerabilities; and better analysis of the potential for international spillovers through the financial sector. better analysis of the potential for international spillovers through the financial sector.  Again, considerable efforts in recent years: initiatives on debt and reserves data after the Asian crisis initiatives on debt and reserves data after the Asian crisis Balance of Payments Manual 6 th edition, with more emphasis on the International Investment Position (IIP) and its composition (e.g., maturity, currency) Balance of Payments Manual 6 th edition, with more emphasis on the International Investment Position (IIP) and its composition (e.g., maturity, currency) Coordinated Portfolio Investment Survey Coordinated Portfolio Investment Survey Coordinated Direct Investment Survey (forthcoming) Coordinated Direct Investment Survey (forthcoming)

16. Data Needs—External Sector, Ctd  IIP: Sectoral composition Sectoral composition Geographical composition Geographical composition Currency composition (incl. of reserves) Currency composition (incl. of reserves)  Expand CPIS (key countries not covered, annual frequency, long lags)  Valuation issues, esp. of FDI

17. Conclusion Some themes that may be relevant for SNA: Balance sheets are indeed crucial Balance sheets are indeed crucial We need not just their amounts but their sensitivities to various developments (for stress testing) We need not just their amounts but their sensitivities to various developments (for stress testing) Off balance sheet and contingent exposures are crucial Off balance sheet and contingent exposures are crucial Aggregation can mask important features Aggregation can mask important features Valuation issues are very difficult Valuation issues are very difficult