Global banking,global crises? The role of the bank balance-sheet channel for the transmission of financial crises

We examine whether shocks to leveraged creditors with cross border holdings have an incidence on debtor countries׳ risk of suffering financial turmoil. We construct a new proxy of shocks to international banks׳ balance-sheets using credit ratings and the structure of their international assets. This allows us investigating the effect of (foreign) bank balance-sheet shocks on domestic financial turmoil in a large sample of 146 developed and emerging economies from 1984 to 2011. Our proxies of shocks towards bank balance-sheets are strong predictors of systemic banking crises in their debtor countries. Confirming these results, bilateral bank flows significantly decrease when creditor banks׳ assets are hit by negative shocks, as measured by credit rating downgrades from third-party countries. Short-term liabilities towards global banks appear to increase roll-over and funding risks, thereby amplifying the impact of shocks to foreign lenders’ balance-sheets. Domestic banking sectors vulnerabilities, such as illiquid assets and a low deposit-asset ratio, are found to increase crisis contagion risk. In contrast, a high level of global liquidity attenuates the transmission of shocks to international banks׳ assets to debtor countries.     

THE USES OF NATIONAL BALANCE SHEETS

The now urgent problem in the field is to translate into practice the theoretical agreement, slowly reached over the past two decades, on the need for and feasibility of sectorized national balance sheets.
The paper discusses the five main uses of national balance sheets, viz. (1) the study of the relations among assets and liabilities at one point of time in one country, particularly the position of financial institutions; (2) the analysis of changes in one country's financial structure between several balance sheet dates; (3) the comparison of balance sheet structure at one date among two or more countries; (4) the comparison of the financial development of several countries for at least two but usually more numerous balance sheet dates; and (5) the use of selected balance sheet items, e.g., reproducible tangible assets or liquid financial assets, in econometric models.
Examples are presented of the first three uses, viz. for (1) an eleven sector balance sheet matrix for the U.S. as of the end of 1962; for (2) an unsectored national balance sheet of the U.S. in 1900, 1912, 1929, 1939, 1945 and 1958; and for (3) a comparison of condensed unsectored national balance sheets for a dozen countries (USA, UK, France, Germany, Belgium, Norway, Italy, Japan, Israel, Mexico, India and the USSR) for a date in the neighborhood of 1960.     

CURRENT COST ACCOUNTING: IMPLICATIONS FOR THE DEFINITION AND MEASUREMENT OF CORPORATE INCOME

This paper is in 7 sections. Section 1 gives as background a chronological account of the steps taken in the United Kingdom, from 1974 to late 1977, towards the development of a new system of accounting in company reports which would allow for the effect of changing costs and prices on the measurement of profit and of capital employed in the business. Section 2 discusses the main features of the system, known as current cost accounting, as it is seen in the United Kingdom. Section 3 surveys the relationship between current cost accounting and the national income and expenditure statistics, and the likely implications of the introduction of current cost accounting upon the quality of macro-economic statistics, including estimates of national and sector balance sheets. Section 4 describes some of the problems of implementing current cost accounting, particularly in special situations, and outlines the solutions which were proposed in the "Exposure Draft" published in 1976 by the accountancy profession in the United Kingdom. Section 5 considers the definition of distributable profit in relation to the need to maintain capital, considering the concept of gain, the system of valuing assets and liabilities, and the enterprise's capacity to take on additional debt as a means of financing its assets. Section 6 briefly surveys the implications for taxation, price control and price setting. Section 7 concludes by surveying the scene at the end of 1977 and by looking at likely future developments.     

财富的国际转移与美国高消费时代的调整——基于国际资产负债结构的分析

美元的霸权地位以及美国特殊的国际资产负债结构为美国攫取巨额国际转移财富提供了条件。另外,美国国际资产负债结构特征也表明,在全球实体经济失衡的同时,全球虚拟经济层面同样存在失衡,这种"双重失衡"的局面为全球经济调整增加了困难。据此类推,这次危机不仅打击了美国的商业银行以及其他金融机构,也打击了美国的货币霸权。国际货币地位的争夺将更加激烈,国际货币合作将更加困难。美国通过价值渠道获得国际转移财富的持续性也将受到冲击,因此美国的高消费时代将难逃调整的厄运。     

L'EXPERIENCE FRANÇAISE DE COMPTABILITE PATRIMONIALE

This article presents the results of the first French efforts to assemble information on the assets and liabilities of the different economic agents. The estimates cover the five-year period 1972–76, with complete balance sheets for the end of 1971, 1972, and 1976. The experimental efforts showed that estimation was feasible. It was possible to bring together the varied, often dispersed, and rarely consistent existing information into an integrated body of aggregates adapted to macroeconomic analysis. The report stresses the importance of articulating the wealth accounts logically with the flow accounts, into a complete, closed, and consistent whole in which the theoretical objectives are well specified. It also points out the limitations of the approach, stemming primarily from the state of the basic statistics relating to wealth.     

NATIONAL AND SECTOR BALANCE SHEETS IN CONCEPT AND IN PRACTICE

National and Sector Balance Sheets are playing an increasingly important role in economic analysis. This article reviews the actual and potential applications and considers whether there is a case for modifying SNA practice and recommendations to increase the value of the contribution that balance sheets can make to analytical work.
The major sections of the article relate respectively to financial and non-financial items in national and sector balance sheets. In the context of financial items, there is discussion of the perception of what constitutes an individual's total financial portfolio and therefore which items should be included or excluded when assessing the financial assets of the household sector (e.g. various forms of pension entitlement and life assurance). The relevance of marketability is considered as is the possibility of attempting to identify a separate domestic households sub-sector. The other main topic considered in relation to financial balance sheets is the relevance of adopting a single approach to valuation; alternatives are considered in relation to the stock of public sector debt.
So far as non-financial assets are concerned, difficulties arise with the national accounting practice of treating the acquisition of consumer durables and military assets as current expenditure. While it is considered, on balance, best to continue to treat the purchase of consumer durables as current expenditure, though recording the value of the stock of durables outside the main body of balance sheets, it is recommended that "non-fighting" assets such as transport ships and aircraft and hospitals should be treated as capital assets. The treatment of sub-soil assets and the valuation of fixed assets is also discussed.
Reconciling balance sheets with flows data is an essential step if balance sheets are to be fully exploited; some comments are offered on the UN guidelines on this topic.     

Do Differences in Financial Development Explain the Global Pattern of Current Account Imbalances?

Building on the panel-regression approach of Chinn and Prasad (2003 ) and Gruber and Kamin (2007 ), we assess whether differences in financial development can explain the large developing-country surpluses or large US deficits. We find little evidence to support these hypotheses. We also assess whether differences in asset returns, an alternative measure of the attractiveness of financial assets, can explain the international pattern of capital flows. Lower bond yields have been generally associated with larger current account deficits in industrial countries. However, US bond yields have not been significantly lower than those in other industrial economies, suggesting that US financial assets have not been unusually attractive. We consider an alternative hypothesis that spending in the United States was uniquely responsive to lower costs of capital. However, we found this hypothesis also to be weak, as household saving rates have declined throughout the industrial economies.     

NATIONAL ACCOUNTS FOR ANALYSING CREDIT MARKET CONDITIONS

It is only within the last two years that the published United Kingdom accounts have been extended to include sector financial accounts; their use for market analysis is, therefore, still in its infancy. The sectors and sub-sectors distinguished in the financial accounts agree very closely with those recommended by the Working Group on Financial Statistics of the Conference of European Statisticians. A major difference is that in the United Kingdom accounts particular emphasis is placed on the distinction between the public sector and the private sector. For this purpose the public sector consists not only of general government but also includes public corporations (that is, public non-financial corporate enterprises). The classification of assets and liabilities is based on a general list which is also similar to that developed by the Conference of European Statisticians. Because of the large capital formation of public corporations and local authorities, the public sector is normally a substantial borrower from the pirvate sector, although its borrowing requirements fluctuate considerably from quarter to quarter because of the uneven incidence of tax receipts. The personal sector provides about one-third of the total saving of the economy, much of which is in the form of contractual saving—through life assurance and superannuation funds and the repayment of house purchase loans. No direct information is available about transactions in stocks and shares by the personal sector, but it is estimated that the sector is a very large seller of securities and in recent years its sales have amounted to £700 million a year. One factor which is important in the analysis of financial accounts and which is not shown specifically as part of the system is the rate of interest. The proportion of personal saving going into the different forms of short term assets has tended to vary according to the relative rate of interest received. The rate of interest also affects the pattern of borrowing by public authorities. The United Kingdom prepares short term forecasts of national income and of the balance of payments, and also forecasts of the borrowing requirement of the public sector and of the central government in particular. For internal purposes, forecasts are made of the various ways in which the government is expected to finance its borrowing requirement. These forecasts provide a useful framework for considering monetary prospects and are particularly important for showing the relation between the forecasts of the balance of payments and of government borrowing from domestic sources, especially from the banks.     

Exchange rate and inflation dynamics in dollarized economies

We use a panel of a hundred-plus countries with differing degrees of dollarization to perform an empirical analysis of the effects on inflation of exchange rate depreciations. The results qualify the common view that countries with higher dollarization exhibit higher inflation pass-through. We show that large depreciations tend to generate a negative impact on the pass-through coefficient, this impact being more intense the higher the level of dollarization of the economy. We interpret this as evidence that, in highly dollarized economies, the classic inflationary effects of a real depreciation—higher internal demand and imported inflation—can be offset or diminished by both the larger financial costs and the balance-sheet effect, especially if the depreciation is “large”. Additionally, the exchange rate regime is shown to matter: countries with fixed exchange rates suffer more noticeably the balance-sheet effects of large depreciations.     

THE SOCIAL ACCOUNTS FROM A CONSUMER'S POINT OF VIEW

After a short introduction, the first part of this paper (section 3 through 9) provides an outline of the revisions proposed to the System of National Accounts (SNA) of the United Nations which are now under discussion. These proposals were considered by an expert group at the end of 1964 and were accepted by the Statistical Commission of the United Nations in 1965 as the basis for further work on the extension and revision of the SNA. The aim of the revision is to provide a fully integrated system of accounts and balance sheets in which input-output, flows-of-funds and sector balance sheets are incorporated in a generalised accounting framework. Whereas the real side of the economy has been studied analytically in many countries (input-output analysis, demand analysis and so on) much less experience is available on modelling the financial side of the economy, apart from econometric work on saving behaviour, which is fairly widespread. Accordingly, the second part of the paper (sections 10 through 14) contains a discussion of financial model-building in which a number of possibilities are explored. The final topic discussed (section 15) is demographic accounting, by which is meant a framework for recording and analysing human, as opposed to economic, flows and stocks. The development of such a system arose out of the emphasis placed by the expert group on the integration of demographic and economic information.     

Balance Sheet Effects, Growth, and Crises

This paper addresses two questions: are currency crises predicted by increases in a central bank’s external and contingent liabilities relative to assets, and do these “balance sheet effects” generate persistent output losses following a crisis? I find empirical evidence that the answer to both questions is yes. I use data on stocks of gross external assets and liabilities for 167 countries over 1973–2003, in an unbalanced panel probit regression to obtain robust estimates of the probability and determinants of a post‐crisis recession. Several single and simultaneous equation specifications support the idea that the output cost of a currency crisis depends on its transmission mechanism. Specifically, a recession is likely to be severe if it is preceded by a crisis that works its way through the financial sector. In addition, the results show that measures of contingent liabilities, capital flight, and lack of financial depth are significant predictors of costly crises.     

THE EAST ASIAN CURRENCY CRISIS: CAUSES AND LESSONS

Financial deregulation and capital-account liberalization preceded speculative currency attacks in Thailand. A combination of de facto fixed exchange rates and high rates of interest generated excessive capital inflows, which led to too much liquidity chasing bad investments. The under-supervised and over-guaranteed financial sector extended loans excessively, particularly for non-productive, speculative purposes. Non-transparent practices, in the form of weak disclosure of institutions' true balance sheets and insider relations, masked these poor investments. The buildup of short-term, unhedged debt left East Asian economies vulnerable to a sudden collapse of confidence. Currency attacks ran down official foreign exchange reserves. Rapid capital outflows and the consequent depreciation of currencies exacerbated the strains on private sector balance sheets. The policy lessons are to (i) use macroeconomic policy to avoid excessive capital inflows and currency overvaluation, (ii) strengthen the financial system, with proper disclosure and accounting requirements, stringent loan classification and provisioning rules, and capital adequacy requirements, prior to capital-account liberalization, (iii) stabilize exchange rates based on currency baskets that reflect trade and investment linkages, and (iv) develop regional. financial cooperation with regional surveillance and peer pressure to maintain policy discipline.     

On dollarization

The paper examines the case for dollarization in emerging market economies. It is claimed that dollarization becomes an attractive monetary regime when account is taken of recent financial turmoil in such economies. The case is further strengthened by the fact that these economies have a penchant for acquiring dollar debts (i.e., liability dollarization). However, exchange rate misalignment and deflation are potentially serious problems, unless appropriate fiscal and public sector prices policies are implemented, in addition to establishing a financial sector whose assets and liabilities face parallel relative price risks. JEL classification: F31, F41     

Bank capital,the state contingency of banks’ assets and its role for the transmission of shocks

I show how the evolution of bank capital depends on the share of non-state-contingent assets in banks’ balance sheets and present the implications for macroeconomic dynamics. State-contingent securities impact on banks’ balance sheets through changes in their returns (and their prices), both of which depend on the current state of the economy. Non-state-contingent assets are signed before shocks are realized and their repayment is guaranteed. For this reason, they insulate banks’ balance sheets from recent economic activity in the absence of defaults. Non-state-contingent assets in banks’ balance sheets attenuate the amplification of shocks resulting from financial frictions. The same effect can be achieved if more weight is placed on the state-contingent assets in the equity related constraint against the costs of long-run output losses.     

基于可流动性资产负债表的我国政府债务风险研究

政府资产是政府债务顺利偿还的基础,当政府资产低于其负债时,政府债务将面临一定风险,因此基于政府资产负债的视角,本文结合中国实际首先编制了一个简化的政府"可流动性资产"负债表,然后,分析了1998—2008年我国政府仅考虑直接债务时的政府债务风险,并且对2009—2010年的政府债务风险进行了分析。研究表明,2003—2006年因外汇储备急剧增长使我国政府债务风险总体较小且比较稳定,但因金融危机的爆发,我国政府债务风险在此期间前后的两次金融危机中都比较大,金融危机对政府债务风险的影响显著。研究还表明,积极的财政政策对短期降低政府债务风险具有明显效果,且1997年亚洲金融危机和2007年美国次贷危机对我国政府债务风险的影响具有相似性,即金融危机爆发后的几年内政府债务风险会因积极的财政政策而经历"大—小—大"的变化过程。最后,通过引入政府或有债务,分析了具有或有债务时的政府债务风险。本文认为,只要我国政府的或有债务规模不超过24万亿元人民币,则我国的政府债务风险较小。     

FINANCIAL ACCOUNTS AND BALANCE SHEETS: ISSUES FOR THE REVISION OF SNA

This paper is an abridged version of a report with the same title originally written for the United Nations Statistical Office, as a part of the ongoing review of the System of National Accounts. Its purpose is to identify the issues in the financial statistics area that need to be considered in the course of the review. Particular attention is paid to problems of harmonization of SNA with related standards of the International Monetary Fund. The 1968 SNA provided a place in the framework for financial accounts and balance sheets, but did not develop them in any detail. In the 19 years since the revised SNA was published, policy and analytic interest in financial questions has greatly increased, and much work has been done on conceptual development and statistical compilation of financial statistics, both within and outside of the SNA framework. It is now apparent that some of the early decisions taken when financial considerations were not the focus of attention need reconsideration, some of the makeshift solutions that have grown up over time are no longer adequate, and some issues that have not been dealt with at all need to be addressed. This paper is not intended to propose solutions, but rather to reflect questions that have been raised, and to present alternatives that have been proposed.     

On the nature and role of financial systems in Keynes’s entrepreneurial economies

In his debate with Bertil Ohlin, Keynes observed that entrepreneurs, when deciding to invest, have to be sure they will access the amount of finance necessary to initiate the investment process and that they will be able, when the time comes, to fund their debts in ways that are adequate to the profile of assets they are purchasing. In this statement, Keynes outlines the functions of financial systems in Entrepreneurial Economies, the type of economies he hypothesizes we live in. In entrepreneurial economies, investing firms have to be able to get hold of the necessary amount of means of payment required to purchase or order investment goods and to build balance sheets where in- and outflows of cash are broadly matched within reasonable margins of safety. This means that financial systems’ primary role in Keynesian economics is not to allocate savings or capital but to allocate liquidity and to allow investors to build liquid balance sheets. The article develops this proposition, presenting Keynes's basic concepts on the matter and showing how modern financial systems perform their role.     

ESTIMATES OF HOUSEHOLD WEALTH INEQUALITY IN THE U.S., 1962–1983

The study has two major objectives. The first is to determine time trends in household wealth inequality in the U.S. over the 1962–83 period. Four concepts of wealth are analyzed: (i) total household wealth, defined as total household assets less liabilities; (ii) fungible wealth, defined as total household wealth less consumer durables and household inventories; (iii) financial wealth, defined as fungible wealth less equity in owner-occupied housing; and (iv) capital wealth, defined as financial wealth less currency, checking accounts, and time deposits. Relying on a variety of data sources, I find that wealth inequality remained relatively constant from about 1962 to 1973, fell sharply from about 1973 to about 1979, and then rose sharply between 1979 and 1983. Concentration in 1983 was greater than that in 1962 for financial and capital wealth but of similar magnitude for total and fungible wealth. The second, methodological in nature, is to analyze the effect on measured inequality of the alignment of raw survey data to national balance sheet totals. I find that the alignment process can significantly affect point estimates of household wealth distribution but does not generally affect the direction of inequality trends.     

中国主权资产负债表及其风险评估(下)

2000——2010年,中国的国民资产负债表呈快速扩张之势。对外资产、基础设施以及房地产资产迅速积累,构成资产扩张的主导因素。这记载了出口导向发展战略之下中国工业化与城镇化加速发展的历史进程。在负债方,各级政府以及国有企业的负债以高于私人部门的增长率扩张。这凸显了政府主导经济活动的体制特征。对主权资产负债表的风险评估表明:(1)总体上,中国主权净值为正,因而,在相当一段时间内,发生主权债务危机的概率极低;(2)近期的风险点主要体现在房地产信贷与地方债务上,而中国的长期风险则更多集中在对外资产负债表、企业债务与社保欠账上。这些风险大都是或有负债风险,且与过去的发展方式密切相关;(3)主权债务动态的模拟进一步揭示出维持经济增长率与利率之差对于化解债务风险的重要性。因此,转变经济发展方式,保持经济可持续增长,是应对主权债务风险的根本途径。     

Foreign Direct Investment and the External Wealth of Nations: How Important Is Valuation?

While the balance sheet approach has increased the focus on position data, differences in valuation practices for foreign direct investment (FDI) make cross‐country comparisons difficult. To enhance comparability, the IMF's Balance of Payments and International Investment Position Manual, sixth edition, which some countries have already implemented and others will implement in the coming years, recommends seven methods for valuation of unlisted FDI. This paper demonstrates that both the valuation method and simple differences in estimation techniques can fundamentally change a country's financial balance sheet. Using Denmark as an illustration, unlisted FDI equity liabilities vary from 22 to 156 percent of GDP when applying different estimation techniques, but just one valuation method, price to earnings. These measurement uncertainties can lead to important misunderstandings and affect policy recommendations, thus pointing to the need for further international harmonization. While the results are presented in an FDI context, the uncertainties also apply to other macroeconomic datasets, including national accounts statistics.