Cross Border Financial Positions and Exposures Juan Pablo Graf Banco de México 1
I. Introduction Information Gaps (Authorities) Foreign Sectors Banks Non Banks Domestic Sectors Banks Other Financial Entities Listed Corporations Non - Listed Corporations Households 2
I. Introduction Information Gaps (Publicly disclosed) Foreign Sectors Banks Non Banks Domestic Sectors Banks Other Financial Entities Listed Corporations Non - Listed Corporations Households 3
I. Introduction The majority of systemically-important banks are foreignowned Market Share % BBVA-BANCOMER 23. 5 CITIBANK-BANAMEX 21. 2 SANTANDER-SERFIN 14. 4 BANORTE 11. 1 HSBC 9. 5 INBURSA 4. 0 SCOTIABANK-INVERLAT 3. 2 Other subsidiaries of foreign banks (14) 4. 6 Other Banks (21) 8. 4 4
II. Exposures of financial corporations Foreign Sectors Banks Non Banks Detailed daily information: Domestic Sectors • Securities and Derivatives Banks Detailed daily information on: • Loans & Deposits • Securities (incl. Repos) • Credits and Deposits (No individual counterpart ID) Monthly Information • Corporate credit • Derivatives • Swaps Financial Entities • Forwards (Brokerage Houses, Insurance Co. , Pension Funds) • Options • FX transactions Detailed daily information: • Securities and Derivatives • Credits and Deposits (No individual counterpart ID) 5
II. Exposures of financial corporations Subsidiaries and Parent Banks • Financial regulation limits the exposure that domestic banks may have to related counterparties (i. e. individuals, firms and any financial entity owned by the same shareholders). • For domestic banks, which are subsidiaries of foreign financial groups, the limits apply to any exposure to parent banks and their foreign subsidiaries (e. g. , London, Cayman) • As of 2008: • The limit applies to all financial exposures (i. e. , loans, deposits, securities, repos, the net exposure arising from derivative transactions; and settlement risk in forex exposures) • The limit was reduced to 50% of Tier 1 capital. 6
II. Exposures of financial corporations Subsidiaries and Parent Banks • Some subsidiaries increased their lending to their parent banks significantly. These positions have been closely monitored. However, this information is not made public. 7
II. Exposures of. Information gaps 1 financial corporations ü Detailed data collected by central bank allowed a prompt assessment of financial entities exposures to “toxic” assets ü This information was very useful to assess early the level of exposure. This information was not made public. 8
III. Exposures of non-financial corporations • • Type of exposure: • Derivatives OTC • Debt with banks and other FIs • Debt through securities issued abroad Information sources: • Creditor data BIS-type data Timeliness (work-in-progress) Central bank survey Granularity ? (maturity, counterparties currencies) • Debtor data Listed corporates (see next) Non-listed • Credit registry ? ? 9
IV. OTC Derivatives • Non-financial corporations in emerging market economies reported large losses due to FX OTC derivatives Exchange Rate Domestic Currency / USD 15 days moving avg. 10
IV. OTC Derivatives • Host authorities do not have timely and detailed information about derivative operations between foreign banks and other FIs domestic non-financial firms • Financial counterparties (domestic and foreign) might not have information about firms’ derivatives operations with other counterparties • Foreign financial counterparties of domestic firms do not have information about firms’ credit history • Complexity of products 11
IV. OTC Derivatives • Regulatory responses (May 2009) Securities Markets Regulation(Periodical reporting - Quarterly) ü Market-to-market positions / Underlyings / Notional amounts ü Detailed payment conditions ü Contingency analysis Financial Information Rules (Financial Statement Disclosure Rules) ü Risks involved (detailed analysis) ü Hedging structure of every derivatives position (including “off- balance sheet” transactions) ü Collaterals ü Valuation techniques ü Levels of exposure 12
V. Non-listed non financial corporations and households Domestic Sectors Foreign Sectors • Banks Non-listed Corporations Households Non Banks BIS-type Aggregate statistics No information (If regulated or listed home supervisors may have some information) Creditor data • Timeliness, granularity of disclosures (maturity, counterparties, currency) • Households: debt or equity 13
V. Non-listed non financial corporations and households Investments in foreign funds “through” an institution in Mexico (“low profile soliciting”, e. g. Stanford) Domestic authorities have no power over such investments. • Response to “Madoff and Stanford” cases: stress the importance of investors verifying that institutions are authorized to take deposits or investments. • Irregular deposit taking and low-profile soliciting will continue, thus information gaps for domestic authorities remain. • Cooperation among international authorities may mitigate the information gaps and greatly contribute to understanding risks borne domestically from investments in foreign funds. 14
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