From-whom-to-whom presentation using Japan’s flow of funds accounts

1. From-whom-to-whom presentation using Japan’s flow of funds accounts Presenter: Yoshiko Sato Research and Statistics Department Bank of Japan Working Party on Financial Statistics24-27 October 2011

2. Compilation of whom-to-whom (W-to-W) data Basic method Method for enhancement in loans - Use of “Detailed Data of FFA” Method for enhancement in debt securities Further challenges Contents

3. Compilation of whom-to-whom data Importance of individual transactions data showing interconnectedness among sectors or intersectoral relationship (G20) Limitation of source data ・Usually, it is difficult to obtain data reported on a W-to-W basis. Proposed framework for W-to-W matrix ・EC, IMF, OECD, UN, and WB [2009], 2008SNA ・IMF and ECB[2011], An Integrated Framework for Financial Flows and Positions on a Whom-to-Whom Basis ・UNSD and ECB[2011],(draft) Handbook of National Accounting: Financial Production, Flows and Stocks in the System of National Accounts. 3/18

4. Compilation of whom-to-whom data Available source data on a W-to-W basis in Japan ・“Detailed Data of FFA” on loans and deposits ・It makes it possible to grasp who finances whom. Our approaches ・First: Make a basic W-to-W matrix. ・Next: Consider enhancement in loans by using Detailed Data of FFA. ・Last: Consider enhancement in debt securities by specifying debtor sectors based on types of debt securities. 4/18

5. Basic method Balance sheet data format NFC: Non Financial Corporations 5/18

6. Basic method Recompose the data, and pick up one item (e.g. Loans) 6/18

7. Basic method Convert BS data into a W-to-W format Assumptions are made that financial assets of a certain instrument category are allocated to counterparty sectors in proportion to the share of liability of respective sectors for the same instrument category. <Loans> Debtor→ Creditor ↓ ・Do the same procedure for all the remaining items. 7/18

8. Basic method Aggregate all the items into the full W-to-W matrix Debtor→ (100mil. yen) Creditor ↓ Currency and deposits Loans Debt securities Total W-to-W matrix 8/18

9. Method for enhancement in loans Use of Detailed Data of FFA in loans ・W-to-W matrix compiled by the basic method is comprehensive but insufficient. It rests upon a resource allocation assumption and lacks any statistical evidence. Source data on a W-to-W basis, if available, should be used. ・BOJ quarterly releases Detailed Data of FFA. It provides figures on which financial sector supplies what amount of loans to which sector. - Therefore, it can be used for enhancement of the basic matrix. 9/18

10. Method for enhancement in loans Loan table is improved (shaded area). (100mil. yen) 10/18

11. Method for enhancement in loans Analysis of the loan table ・The size of nodes represents the total amount of assets and liabilities within sectors. ・The thickness of lines represents the amount of exposures among sectors. ・Interconnectedness through loans are weakened from 2000 to 2010. The volume of loans provided by ODC to NFC is decreased by 30%. 2010 2000 1990 CB HH ODC ROW ICPF OFC NFC GG 11/18

12. Method for enhancement in loans Further analysis of the loan table; between ODC and ROW- Direction can be analyzed - The volume of loans between ODC and ROW increased from 2000 to 2010 ・In 2010, ODC borrows more from ROW than in 2000. ・ROW borrows less from ODC than in 2000. Interconnectedness is enhanced mainly because of the increase of borrowings of ODC from ROW, rather than that of ROW from ODC. Loans from ODC/ROW to ROW/ODC 12/18

13. Method for enhancement in debt securities • W-to-W matrix for debt securities (issued by resident) is compiled by specifyingdebtor sectors based on types of debt securities. 13/18

14. Method for enhancement in debt securities • In Japan’s FFA, some public corporations are classified in financial institutions, nonfinancial corporation or general government. Public corporation securities issued by those sectors are supposed to be issued by “Public corporation” sector in this matrix. • The advantage of the method is that flow tablescan be compiled. • ・In the basic method and in the method for enhancement in loans, flow tables cannot be compiled because of the difficulty in treating negative figures. 14/18

15. Method for enhancement in debt securities– Positions – 15/18

16. Method for enhancement in debt securities– Flows – 16/18

17. Further challenges Basic method ・ Transactions within non-residents are not covered by definition of a W-to-W framework. Therefore, the intra-sectoral transactions within ROW should be controlled to zero. Method for enhancement in loans ・The difference of the valuation method should be reconciled. (FFA: market value basis, DD of FFA: book value basis) Method for enhancement in debt securities ・The W-to-W matrix for debt securities has not yet been integrated into the basic and loan-enhanced matrix, because the composition of debtor sectors is asymmetric to creditor sectors (“Financial institutions & nonfinancial corporations” are not separated each other). ・Additional W-to-W information by each type of securities is required. 17/18

18. Further challenges Basic method has limitations for illustrating actual intersectoral relationship. In order to make W-to-W matrix fully competent, steady efforts such as applying “Detailed Data of FFA” or utilizing carefully compiled W-to-W matrix for debt securities are critically important. 18/18

19. Thank you for your attention