1. 1 Data Requirements For Assessing the Health of Systemically Important Financial Institutions (SIFIs) for IMF-FSB Users Conference Washington, D. C., July 8-9, 2009 Hans Genberg Hong Kong Monetary Authority

2. 2 Outline 1. What is a SIFI? 2. What data do we currently collect?  Data requirements before the credit crisis  Extra data requirements after the credit crisis 3. What other data can potentially improve our risk assessment?

3. 3 Characteristics of SIFIs Characteristics of SIFIs Systemically Important = potentially pose significant risks to financial stability = potentially pose significant risks of severe disruptions to the smooth functioning of the financial system Size is the single most important determining factor – the larger it is, the greater its potential systemic consequences Apart from size, what other features that may characterize a SIFI?

4. 4 Characteristics of SIFIs Financial institutions whose difficulties tend to produce a domino effect in the financial system 1.Deposit taking financial institutions  Great impact on the confidence of the general public 2.Major financial market players  Large number of counterparties

5. 5 Financial institutions whose profitability tends to be positively correlated with financial market volatility :  Hedge fund  Highly leveraged financial institutions Volatility = profitable opportunities = risks to stability of the system  Lead to herding and rush-to-exit  Some trading strategies undermine the financial system Characteristics of SIFIs

6. 6 Characteristics of SIFIs : Hedge Fund and Highly Leveraged FIs They are difficult to monitor because of : 1. The absence of supervisory mandate under existing laws  Credit lines are provided by banks overseas 2. The lack of international framework for information exchange

7. 7 Data Requirements Before the Global Credit Crisis Balance Sheet  Asset and Liabilities - Capital and reserves, deposits from customers, cash, and certificates of indebtedness  Profit and Loss - Interest income/ loss, income from investment, and dividend  Large Exposures - Commitments and contingencies, interest rate contracts, and foreign exchange contracts  Loans and Advances - Classification of loans and advances by economic sector, and asset quality

8. 8 Data Requirements Before the Global Credit Crisis Capital Adequacy  Capital Adequacy - Core capital, supplementary capital, and risk- weighted positions  Interest Rate Risk - Total interest bearing assets and liabilities classified by time band  Market Risk - Debt securities, debt-related derivative contracts, interest rate derivative contracts in the trading book, and FX and equity exposures

9. 9 Liquidity  Liquidity - Gold, marketable securities, exchange fund bills/notes, and eligible loan repayment Data Requirements Before the Global Credit Crisis

10. 10 Two half-yearly surveys on off-balance sheet exposures and debt securities portfolios Banks encouraged to disclose :  Sub-prime related assets and their impairment charges  Complex financial instruments and structured financial products Additional Data Requirements After the Global Credit Crisis

11. 11 Potentially Useful Data Potentially Useful Data No significant data gaps Two areas of potentially useful data for conducting stress testing analysis 1.Breakdown of undrawn irrevocable credit commitments by types of customers 2.Creditworthiness of debt securities other than credit ratings

12. 12 Potentially Useful Data: Undrawn Irrevocable Credit Commitments by Customer Type The breakdown of undrawn irrevocable credit commitment by customer type is important in assessing contingent liquidity risk Sources of contingent liquidity risk :  Considerable drawdowns on irrevocable credit commitments  Over-concentration of irrevocable credit commitments

13. 13 Potentially Useful Data: Creditworthiness of Debt Securities Drawbacks of through-the-cycle credit ratings  Low sensitivity of ratings to current market risk Particularly important for SIFIs risk assessment  Usually hold larger investment portfolio  Exposed to significant market risk Examples  Current Market Yield  Internal model default risk of banks’ holdings of debt securities

14. 14 Potentially Useful Data: Framework for Information Exchange and Disclosure International framework for information exchange of large non-bank SIFIs could enhance the monitoring process Central banks and financial regulators could disclose data on the activities of non-bank SIFIs at an aggregate level