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Securitisation and the Euro Area Accounts

The institutional sector framework to financing

Andreas Hertkorn, ECB DG-StatisticsEuropean Central Bank

WPFS Workshop on Securitisation

OECD/Banco de España, Madrid, 27&28 May 2010

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Statistics for a monetary unionPart I: EAA – full presentation of non-MFI financing– Full coverage of financing and investment– Coverage of all financial intermediaries– Consistent presentation of security and loan markets

Part II: EAA and the financial crisis – Securitisation not related with origination of new loans– Difficulties to reconcile security issues and purchases

Part III: Integration of new statistics into the EAA– Securitisation (FVC) statistics, Security holding statistics

(SHS)=> Who is financing whom – counterpart sector matrixes

Overview

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1. Full presentation of non-MFI financing: Introduction

• EAA are a complete set of financial accounts and non-financial accounts by institutional sector

• Early main use of financial accounts: non-MFI financing to Households (HH) and Non-financial corporations (NFCs):

Since 2003: financing of HHs and NFCs from non-MFIs: loans from Other Financial Intermediaries (OFIs) and Rest of the World (RoW)

• Since 2007: Full coverage of financing and investment of all sectors:

=> Comprehensive and consistent presentation of intermediated financing (loans), security markets (debt securities and shares) and other financing (e.g. other equity and, accounts payable/trade credits):

Loans granted (by MFIs, OFIs, Row …) = Loans received (HHs, NFCs…)

Securities issues (by MFIs, OFIs, Gov’t…) = Sec. purchases (HHs, RoW…)

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1. Full presentation of non-MFI financing: Challenges

• Full, consistent coverage of non-MFI financial intermediaries and interactions with the Rest of the World proofed difficult

• Other financial intermediaries sector is heterogenous

Other corporations engaged in lending (financial leasing). investment funds, financial holdings/subsidiaries, special purpose vehicles (SPEs)‘…

• Accounting treatment of SPEs differs between countries

- Consolidation with MFIs?

- Coverage of non-resident units?

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1. Full presentation of non-MFI financing: analytical needs

Available information (e.g. metadata from countries):

• Developments in OFI financing to HHs driven by - Financial Vehicle Corporations engaged in securitisation (FVCs) (securitisation of mortgage loans to households)

• Developments in OFI financing to NFCs driven by - Financial subsidiaries (issuing debt securities on behalf of

NFCs) and - Financial Vehicle Corporations engaged in securitisation

(FVCs)

• Large off-balance sheet activities of MFIs

Increased user interest in FVCs Reporting requirements for FVC coordinated with

enhanced reporting requirements for MFIs (integrated reporting approach)

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II. EAA and the financial crisis: NFS financing Decline in MFI loans in 2008q3/09q2 partly offset by OFI loans

• OFI loans not due to real economic activity/new loan origination

• Securitisation of old MFI loans

• But who purchases FVC’s security issues?

Loans to the private non-financial sectorsQuarterly transactions (EUR bn)

-60

-10

40

90

140

190

240

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

'06 2007 2008 2009

OFI loans to households MFI loans to householdsOFI debt security issuance

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0

60

120

180

240

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

'06 2007 2008 2009

OFI loans to non-financial corporations MFI loans to non-financial corporationsOFI debt security issuance

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II: EAA and the financial crisis: debt securities

EAA’s complete presentation of financial markets became increasingly difficult for debt securities:

Initial imbalances between debt security issues and purchasesAverage absolute imbalances for transactions (EUR bn)

Largely due to different treatment of retained securitisation- Recording of security issues by FVCs- Non-recording of security purchases by MFIs (in some countries

before harmonisation of MFI BSI statistics)

Initial imbalances for debt securities

Short-term debt securities Long-term debt securities

1999Q1-2006Q4 19 18

2007Q1-2009Q3 39 38

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II: EAA and the financial crisis

If MFIs retain (large parts of) ABS issued by FVC

=>IFRS: - no de-recognition of loans in MFI balance sheet - proceeds of securitisation recorded as deposits

=> no recording of ABS holdings by MFI

Assets Liabilities Assets LiabilitiesLoan to be sold 10 AF4

Assets Liabilities Assets LiabilitiesProceeds from the securitisation

10 F2

Financing from SPV F2 10 10 F2 Financing to MFI

F33 10Financing through debt securities

Assets Liabilities Assets LiabilitiesThe loans is still on balance-sheet

10 AF4

Proceeds from the securitisation

10 F2

Financing from SPV F2 10 10 AF2 Financing to MFI

AF33 10Financing through debt securities

MFI OFI

TransactionsMFI OFI

Closing Balance-Sheet

Opening Balance-SheetMFI OFI

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II: EAA and the financial crisis => lessons

Increased data needs for monetary/financial, economic and financial stability analysis

• Financial links between sector – who is financing whom? How is the risk distributed? Who bears holding losses ?

EAA: counterpart sector information for loans

EAA: holding losses/gains for securities

Securitisation: integrated reporting of MFIs and FVC engaged in securitisation

Development of counterpart sector information for securities: Security holding statistics (SHS)

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II: EAA and the financial crisis => lessons

Need for harmomised and and comprehensive coverage of securitisation

BSI regulation: harmonised treatment of securitisation

FVC regulation

New ESA:

- Description of securitisation

- FVCs explicitly part of OFI sector

Important for the compilation of EAA using national financial accounts:

FVCs are separate institutional units irrespective of whether set-up domestically or in other member state

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III: Integration of new statistics into the EAA

• New integrated MFI/FVC reporting of securitisation will increase coverage, consistency and detail for OFIs:

- consistent recording of domestic and cross border securitisation

- consistent recording of (de-recognised) loans and securities

• Counterpart sector information for loans needs to be complemented by counterpart sector detail on securities

This will then allow to answer questions like

• Which sector holds what kind of securities issued by FVCs backed by loans to households?

• How are holding losses by sectors matched by their capital?