Bringing Together Regulatory and Statistical Reporting:
A Win-Win Strategy
Keynote speech by Mr Pedro Duarte Neves, Vice-Governor of the Banco de Portugal, at
the Workshop on "Setting Global Standards for Granular Data: Sharing the Challenge",
jointly organised by the ECB DG-S, the Bank of England and the US Office of Financial
Research. Frankfurt am Main, 28 March 2017
Dear colleagues, fellow central bankers, ladies and gentlemen, good afternoon.
It is a pleasure for me, and an honour, to have the opportunity to address you on the
occasion of this 3rd edition of the workshop on "Setting Global Standards for Granular
Data".
I would like to begin by thanking the organisers for giving me the opportunity to take
part in this event. On the basis of what I have seen so far, and in anticipation of what is
yet to come, it is safe to say that this workshop will indeed provide fruitful discussions
between policymakers and market participants and yield valuable inputs for the
fulfilment of our different mandates.
I will centre my contribution on the positive synergies arising from bringing together
regulatory and statistical reporting.
Financial supervisory activities generally demand the regular exchange of great volumes
of information between supervisors and supervised entities. In many cases, these
entities are often requested to share additional information on an ad hoc basis to cope
with the need to clarify specific aspects of their activities. Furthermore, these entities
are also requested to report, on a regular basis, information for statistical purposes,
which is typically more frequent and with a shorter timeliness.
In setting up a data system supporting the recently created Eurosystem's financial
supervision activities, important synergies with the statistical reporting have been
recognized. In fact, integrating both functions allows reaping large benefits, which
positively affect both the data compilers and the reporting entities: while the former
can take advantage of the existing infrastructure and the expertise accumulated over
time, the latter can benefit from a reduced reporting burden through the mitigation of
data redundancies and overlapping.
The synergies go beyond the lower burden for data providers and the gains in terms of
the economies of scale for the data compilers. The possibility of combining micro level
datasets will continue to be crucial to the development of analytical tools to assess
supervisory and financial stability issues. It will also foster scientific research in relevant
areas.
Still, it should be highlighted that, even though there are important synergies to explore
in bringing together such reports, these interactions are far from straightforward and
demand a great amount of cooperation between the entities involved. For instance, the
reporting standards specified by IASB, EBA or the ECB, are sometimes different in their
respective scopes, which emphasizes the need for a progressive harmonization of the
underlying concepts.
In my address I will briefly and selectively overview the work that has been done so far
at the European level to enhance the interactions between the Single Supervisory
Mechanism (SSM) data needs and statistical reporting - with a reference to the
extremely important work developed by the EBA - and will proceed with an outline of
the experience of Banco de Portugal in managing large micro-datasets as well as in
enhancing the synergies between financial stability assessment and microdata
availability.
An important step towards the setting up of the SSM data supporting system is related
to the update of the legal provisions ruling the use and exchange of confidential data,
which was initially designed having in mind the statistical function of the European
System of Central Banks (ESCB).
To address these concerns, the Governing Council approved, in April 2014, a
recommendation for a Council Regulation amending Regulation (EC) No. 2533/98
concerning the collection of statistical information by the European Central Bank (ECB).
In a nutshell, this initiative aimed at creating a legal framework for the transmission and
use of confidential statistical information supporting the role of (i) the European Central
Bank, in its capacity as the competent authority in prudential supervision, (ii) the
National Competent Authorities (NCAs), responsible for prudential supervision in the
Member States, and (iii) the Member-States and European Union authorities
responsible for the financial system stability.
Actually, the need for information sharing across supervisory entities became even more
evident in the aftermath of the recent economic and financial crisis. The ensuing
development of macroprudential supervision highlighted the crucial role of the
transmission of key information across banking, insurance and financial markets
supervisors. This is a point that definitely needs more debate and refinements at both
euro area and Member-States' levels.
The European Banking Authority's Implementing Technical Standards (ITS) provide a
harmonized approach to supervisory data collection across Europe, allowing not only
sounder comparisons among the different countries, but also a common set of
regulations and definitions that pave the way to the single supervisory initiative. In this
area, it is important to highlight the impact that the existence of harmonized supervisory
reports at the European level - such as FINREP and COREP - had on enabling the setting
up of the SSM in such a swift and efficient way.
As for the infrastructure, new bodies were created to cater for the data needs associated
with the SSM. In particular, one of the main tasks of the Working Group on Supervisory
Statistics, which was created in the wake of the construction of the SSM, is the
collection, production and dissemination of supervisory data harmonised under the ITS
and any other additional supervisory data deemed necessary for the SSM.
Moreover, following a recommendation by the so-called Groupe de Réflexion on the
integration of statistical and supervisory data, and in recognition of the importance of
data requirements harmonization, the Statistics Committee (STC) endorsed the creation
of the Task Force on European Reporting Framework, which - as Mr Turner has already
outlined earlier this afternoon - is responsible for the design of integrated reporting
schemes, covering a wide range of different statistics, namely credit institutions
balance-sheet statistics, money and interest rates, securities holdings and credit
statistics. Pursuant of its mandate, this task force has also liaised with other SSM
structures in trying to identify potential SSM requirements and propose additional steps,
as well as with other groups, such as the Expert Group on Statistical and Banking Data
Dictionary (whose transformational work Mr Ganoulis has just shared with us in the
previous panel session).
Efforts of conceptual harmonisation and convergence have also been taken regarding
another key source of microdata: the Central Credit Registers (CCRs). These information
systems provide central banks, banking supervisory authorities and commercial banks
with information regarding the indebtedness of credit institutions, companies,
individuals and the public sector and are a fundamental tool to monitor and manage
credit risk, as well as to provide an overview of credit exposures and the level of
indebtedness of both resident and non-resident borrowers vis-à-vis national financial
intermediaries. In order to get a better overview of the level of indebtedness of the
borrowers the ESCB has explored, since 2007, the potential statistical use of CCRs. In
particular, it sought to understand to which extent their content could be enhanced and
adapted to euro area and European Union statistical needs, to alleviate the statistical
reporting burden and to increase transparency.
Against this background, and following up on the work of the ESCB Task Force on Credit
Registers and of the joint STC / Financial Stability Committee Task Force on Analytical
Credit Datasets, the ESCB has been developing the AnaCredit project, which will
establish a Eurosystem database comprising loan-by-loan data on credit granted by euro
area financial institutions to legal entities. This will create the opportunity to answer
some of the data gaps identified in the wake of the financial crisis, by generating clear
and detailed information that will greatly assist monetary policy decision-making and
help keep the financial system sound and transparent. Moreover, AnaCredit will be
based on harmonized concepts and definitions and on a complete coverage of (at least)
all euro area Member-States, thus ensuring more comparability and improving, in a
significant way, the statistical information available at the Eurosystem level.
To this end, the ESCB has already taken several concrete steps to make this project a
reality by September of 2018, of which the most important was arguably the publication,
in May of 2016, of the regulation on the collection of granular credit and credit risk data
(or, put simply, the AnaCredit Regulation), which has set forth, inter alia, the scope,
purpose, content and calendar of the future data collection.
Notwithstanding, the development of such a wide project has set several practical and
strategic challenges to the ESCB. One of the most notable obstacles that this project has
imposed is the development and management of adequate, timely and trustworthy
reference data, that is, the information on the "actors" participating in the operations
reported, given the high degree of heterogeneity across countries in the way legal
entities are identified. To cope with such a daunting challenge, the ESCB decided to
extend and upgrade an existing reference database: the Register of Institutions and
Affiliates Database (the RIAD).
That said, I am aware of the fact that this chain of events, albeit seemingly long, stays
short of being an exhaustive list of the initiatives and actions that have been carried out
in this context. It gives us, nevertheless, a general idea of the many efforts that have
been devoted at EU level in exploring the synergies between statistics and supervisory
data. A lot has certainly been done so far, but we are still taking the first steps in what
appears to be a long but exciting journey.
In this sense, the dynamic interaction between supervisory data needs and statistical
reporting will be a challenging process. In what follows, I will highlight several
dimensions in which this interaction can be particularly fruitful, building on the
experience of Banco de Portugal.
Banco de Portugal has been gradually developing a data system based on microdata.
The approach has been twofold: first, to build and manage highly detailed and granular
databases; second, to evolve towards an integrated data infrastructure. In the context
of financial stability and supervision, allow me to highlight the following three statistical
micro-databases:
─ The Central Credit Register, a database containing granular information on
credit on a borrower-by-borrower basis and, in some cases, including details
which provide loan-by-loan information, with a virtually complete coverage -
features that have enabled the Bank to compile comprehensive statistics on
credit, to assess credit concentration and distribution and to measure overdue
loans and overdue loans' ratio, with a view to better understand the risks
underlying banks' balance sheets;
─ The Central Balance Sheet Database, a data repository that holds accounting
and financial information covering almost exhaustively the existing
nonfinancial corporations, giving us a complete view on this sector's assets and
liabilities and allowing the Bank to, inter alia, monitor and conduct detailed
studies on businesses and entrepreneurial dynamics;
─ The Securities Statistics Integrated System, a very comprehensive
security-bysecurity and investor-by-investor database on both securities holdings and
issuances, which complements the Central Credit Register data on loans with
data on securities and, from a portfolios' perspective, constitutes a powerful
tool to measure exposures of banks and non-banks to specific issuers.
Moreover, the combination of these two datasets provides a more complete
overview of the indebtedness of the economy as a whole.
The joint management of micro-databases has many advantages covering the whole
statistical compilation chain, spanning from the data collection processes to the
dissemination policy. From an input perspective, these relate mainly to the reduction of
the burden imposed on reporting institutions and, from an output perspective, to a
wider range of possibilities as regards the level of complexity and detail of statistical
products and the additional flexibility in defining and creating different outputs, allowing
users to define their own data queries according to their specific needs in a tailor-made
way. In this respect, the long-standing aim of Banco de Portugal in having a fully-fledged
integrated system, encompassing, to the extent possible, granular data of all
institutional sectors and financial instruments, which can then serve the purposes of the
different internal and external stakeholders, should be highlighted. To properly manage
such detailed, comprehensive and complex information, a robust state-of-the-art data
system is of the essence, boosting appropriate IT tools and solutions able to respond to
the challenges ahead.
An outstanding example of the advantages of this joint management of micro-databases
that I would like to share with you is the recently taken steps towards the creation of an
in-house credit assessment system (ICAS) at Banco de Portugal. This system, which is
being fine-tuned as we speak, further explores the informational potential of both the
Central Credit Register and the Central Balance Sheet Database and will provide Banco
de Portugal with its own internal credit risk assessment system, thus reducing its
dependence on external sources. Against the background of the recent economic and
financial crisis, these systems have recently been gaining importance within the
Eurosystem, as can be seen by the increasing number of NCBs that have introduced
them. In fact, at the current juncture, a more pressing business case for ICAS stems from
monetary policy purposes, for which ICAS will provide an evaluation of debtors' credit
notation.
But the benefits of such a system are not exclusive to monetary policy. In fact, there is
a broad range of advantages to different business areas, in particular regarding
supervision and financial stability.
Starting with supervision, the credit notations derived from ICAS could be used not only
as a benchmark to gauge those provided by institutions with their own internal notation
systems, but also as a way to assess the quality of individual credit portfolios, while
potentially contributing to an early identification of specific risks to which institutions
may be exposed to. Furthermore, the analysis of risks and weaknesses of different
economic sectors and the Portuguese financial sector's response to them could also be
envisaged, thus providing a useful input for stress-testing.
As to financial stability, ICAS's data could also be used as a monitoring tool of the
developments of the non-financial sector (and the potential building up of imbalances),
not only as a provider of non-financial corporations' credit risk indicators, but also with
the expert judgement of the risk analysts. This tool could serve, at least, two purposes:
on the one hand, to assess the fragility of specific sectors of the economy, in particular
through the economic and financial analysis of the companies that constitute each of
the sectors; on the other hand, to contribute to evaluate other risks stemming from the
NFCs sector, hence providing additional insights on the main risks and threats to
financial stability.
Another good example of the advantages of an integrated management of microdata is
the combination of the Portuguese Central Credit Register dataset with accounting
information at the firm level (from the Central Balance Sheet Database) for the purpose
of analysing the drivers of credit risk for firms.1 Also, even though the use of household
data is more restricted by legal constraints (notably in what concerns the merging of
these datasets), there have been several efforts to identify what drives household
defaults. These lines of research allow the identification of emerging risks in banks'
portfolios, as well to create modelling tools for the forecasting of default probabilities.
The latter are a key input in stress-testing exercises.
The integration of these micro-datasets unleashed new possibilities for policy-oriented
research. In what I find one particularly rich example, researchers made use of the three
micro-datasets that I mentioned before to document the impact of the Eurosystem's
Expanded Asset Purchases Programme on lending rates in the non-financial sector.2
More generally, this expanded information created an ecosystem of intense scientific
activity which will no doubt continue to generate a steady flow of high quality research.
Having acknowledged the importance of microdata and their integrated management, I
would like to address now a number of noteworthy initiatives taking place at Banco de
Portugal that aim at fostering the use and share of this granular information.
Firstly, Banco de Portugal, as well as many other national central banks, assigns a high
priority to the use of granular data for economic research. In our case, this task is mainly
undertaken at the Research Laboratory on Microdata (BPLim), an investigative structure
integrated in the Bank's Economics and Research Department, whose chief objective is
to support the production of research projects and studies on the Portuguese economy,
both by the Bank's economists and authorized external users. Specifically, BPLim aims
at, inter alia: (i) providing scientific and computational support for microdata-backed
research; (ii) promoting training actions in micro-econometrics and panel econometrics;
and (iii) disclosing econometric estimation techniques applied to microdata.
Secondly, I want to emphasize the recent launch of the so-called International Network
of Exchanging Experiences on Statistical Handling of Granular Data (INEXDA, for short),
an international network in the field of microdata. Banco de Portugal is one of the first
participants in this structure, along with Banca d'Italia, Banque de France, Deutsche
Bundesbank and Bank of England. The INEXDA network will provide a basis for
exchanging experiences on the statistical handling of granular data which are accessible
to external users, and will approach very relevant issues such as the accessibility of data
and metadata, techniques for statistical analysis of granular data and data protection,
and procedures for output control. Furthermore, INEXDA offers a framework to
investigate possibilities to harmonise access procedures and metadata structures, to
develop comparable structures for existing data, and to further foster efficiency of
statistical work with granular data.
Let me also mention, as a third illustration, the relevance of the Funding and Capital
Plans (FCPs) exercises. These plans - which focus on the solvency, liquidity and
profitability of the largest banking groups - include detailed historical and prospective
accounting and prudential information (overall strategies pursued in a 3-4 year time
horizon) and are built over harmonized macro scenarios, guidelines and restrictions,
thus allowing for full consistency among institutions. On top of its direct relevance for
supervision, the analysis of FCPs contribute to the prospective assessment of the
intermediate objectives of the macroprudential policy; in addition they can also be used
to assess the coherency and sustainability of the projected aggregate trends on credit,
funding, financing to the economy, and profitability. As such, this instrument is much
suited for the pre-emptive nature of macroprudential policy.
Lastly, let me also draw your attention to ongoing developments on the collection of
loan-by-loan information from banks on the value of collateral and households' income.
This information allows the calculation of loan-to-value (LTV), loan-to-income (LTI) and
debt-to-income (DTI) ratios for household mortgages on a regular basis, both at the
origin of the contract and over its life span. This information allows the analysis of the
distribution of LTVs and LTIs across loan contracts and relate this information to other
relevant characteristics of the contracts (e.g., interest rate spreads, maturities and
nonperforming loans), therefore improving the monitoring of risks from banks' exposure to
mortgages and banks' practices with respect to mortgage credit.
To sum up, the data needs put forward by the supervisory functions can be regarded by
NCAs and the ECB as an opportunity to explore important synergies between supervision
and statistical activities, which can be threefold:
(i) Concerning data collection and information systems, integrating the reports for
both functions will generate large benefits, not only for the data compilers but
also for the reporting entities. In this context, highly granular data collection
schemes are proving to be fundamental;
(ii) A wide range of analytical studies, which have been crucial for supervision and
financial stability, benefit significantly from microdata. These analyses reveal the
heterogeneity hidden behind aggregate numbers and allow for a better
understanding and monitoring of the financial system, thus providing the
supervisor a closer and more comprehensive perspective of the financial sector
and of its relations with the other sectors in the economy. More generally, the
integrated management of microdata enabled an explosion of research activity
aimed at better understanding the workings of the financial system and the
economy at large;
(iii) The core supervisory data, granular credit data and ad hoc data sets, collected
and treated by statistics, will generate value not only for the direct supervision
but also for the horizontal functions of the SSM, including sector-wide reviews
and for identifying trends and emerging risks.
To maximize the usefulness of all the new information that will be available, further
work should focus on its analysis and integration, to ensure that the higher reporting
standards are reflected in a sounder framework for banking supervision, thus fostering
financial stability at the EU level.
To conclude, I would like to wish you all the best for the remaining of this inspiring
workshop and indeed for the future. I am confident that you will keep up the excellent
work you have been doing so far in this challenging area with the same enthusiasm and
indisputable expertise.
Thank you very much.