Unformatted text preview: Statistical Information and the Banking Sector
PLENARY 1: INFORMATION IN KEY ECONOMIC SECTORS Introduction
Focus is to demonstrate how statistical information is critical for banking and more broadly monetary and financial sector activities. Structure of Presentation Sector definition, structure, objectives and stylized facts Importance of statistical information for banking and financial activities Sources and limitations Approaches at addressing limitations and challenges Conclusion Sector definition The banking sector consists of all resident corporations engaged in financial intermediation in any given economy (IMF-MFSM 2000) (Financial intermediation is a productive activity in which these corporations raise funds by incurring liabilities on their own accounts for the purposes of channeling these funds to other institutional units by way of lending resource allocation from saves to investors) Sector Structure Banking Sector Central Bank : monetary authority and oversees Commercial banks, merchant banks, savings, credit union, rural and development banks, etc. engaged in allocation of savings to investment opportunities in the interest of profit making Depository corporations Financial Sector
Banking sector Other financial institutions (security markets, brokers, insurance, pension funds, etc) Sector Objectives Note! The task of financial intermediation is well promoted in a stable operating environment for the institutional units engaged in it. Therefore: Central Banks' objectives are: Formulate and implement policies to ensure monetary stability; and Undertake actions to ensure financial sector soundness All of these geared to creating the enabling environment for financial intermediation. Objectives' cont'd Depository corporations' objectives: engaged in resource allocation to make profit and enhance shareholders' earnings or value To fulfill these objectives, sound and broad statistical basis is needed. Stylized facts on structural changes in the banking industry Prevalence of banking crises IMF in 1996 estimated that @130 countries had experience banking crisis of some sort. Increasing concern for contagion because of: Increase international nature of banking business Increasing integration of international financial markets Deregulation and openness to international competition etc Although there are pluses for these changes, they present a challenge and make crises difficult to detect. Importance of statistical information in this new banking environment This would be demonstrated against the background of the objectives of the key players in the sector given the new environment for banking business:
Role of statistics in central banking Role of statistics in commercial banking Role of statistics to the non- bank public Role of statistics for central banking Recall primary objectives:
Monetary policy to ensure monetary stability and Financial stability or financial sector soundness. All to support efficiency in intermediation Statistics provides the main support in pursuing these objectives Statistics for central banking For Monetary Policy Purposes Central bank economists need to know the working of the economy, to decipher the role their policy can have in the economy (transmission mechanism of their policy) Data would be required to test their empirical framework to determine the transmission mechanism that relates what the central bank can control, i.e various aspects of the balance sheet, to influence the ultimate objective. For this, economic and financial statistics are required: national accounts aggregates, government finance statistics, balance of payments statistics, cpi, financial market statistics, etc Stat for central banking cont'd Use of financial soundness indicators Basis for monitoring the health and efficiency of the financial sector They a measure of financial strength of the banking sector Form the basis for assessing vulnerability of the sector to instability CAMEL framework quite useful and largely supported by both theoretical and empirical literature. Will highlight the importance of only few indicators. Financial soundness indicators CAMEL:
Capital adequacy indicators Asset quality indicators Management soundness indicators Earnings and profitability indicators Liquidity indicators For the central bank, information on these components for individual banks and aggregated give provide signals of the soundness of the banking system. Use of Statistics in deposit money banking Recall objective is to engage in financial intermediation to make profit and increase shareholders' earnings. Need information on: Their operating environment (macroeconomic statistics and sector statistics) Their internal management Earnings and profitability Asset quality and capital adequacy Reason: to satisfy prudential requirement to stay in business and the guide their business decisions Stats in DMBs Macroeconomic statistics for commercial banks Many studies relate banking crises to certain macroeconomic developments E.g. Fisher (1993), Demirguc-Kunt and Detragiache (1998), Kaminsky and Reinhart (1996) They point to, falling growth rates, high inflation, weak export sector performance, volatile exchange and interest rates as sources of financial fragility. To support internal governance or monitoring of internal control system, indicators such as expense ratio, earnings per employee, rate of expansion in # of banks are important Stats in DMBs Earnings and profit information such as returns on assets, returns on equity, etc are useful To address problems of debt contract such as adverse selection and moral hazard arising from asymmetry of information between borrower and lender, data on ability to pay is needed e,g debt- equity ratio signals exposure to private sector, household debt to GDP is a measure of leverage Information for the public Also to address information asymmetry problems, the public needs market information on the banking sector as well: E.g. prices of financial instruments Credit worthiness of banking institutions; etc Data Sources and Limitations Sources: Banking sector, both producer and user of statistics National statistics institutes, help where the banks Limitations Timeliness and quality Addressing limitations and challenges International efforts at developing guides and manual; Frameworks for data disseminations Challenges:
Need for efficient payment system infrastructure to enhance timeliness of banking sector statistics The challenge is tougher as countries move to a monetary union with the need to conduct a common monetary policy . Conclusion Range of statistics require for banking and financial activities is daunting drive policy makers, markets and the public alike Economic policy and business decisions are all driven and formulated using statistics as building block Raw material for policy proposal, therefore need to be of good quality and made available in time. ...
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This note was uploaded on 05/20/2010 for the course DOF AAf001-6 taught by Professor Changchungdo during the Spring '10 term at 카이스트, 한국과학기술원.
- Spring '10