ANNEX I

REPORTING OF ADJUSTMENTS AND THE DERIVATION OF TRANSACTIONS

PART 1

General description of the procedure for deriving transactions

Financial transactions are the net acquisition of financial assets or the net incurrence of liabilities for each type of financial instrument, i.e. the sum of all financial transactions that occur during the relevant reference period. The framework for deriving transactions for monetary financial institutions (MFI) balance sheet items (BSI) is based on the European System of Regional and National Accounts (hereinafter the ‘ESA 2010’) established by Regulation (EU) No 549/2013 of the European Parliament and of the Council (1). Deviations from this international standard are made concerning both the data content and names of statistical concepts, where necessary. This Annex is interpreted in accordance with the ESA 2010, unless Regulation (EU) 2021/379 (ECB/2021/2) (2) or this Guideline explicitly or implicitly override its provisions.

In the context of BSI statistics, the ECB calculates transactions by taking, for each asset and liability item, the difference between outstanding amounts at end-period reporting dates and then removing the effect of developments that are not the result of transactions (‘adjustments’). These are grouped into the main categories ‘reclassification adjustments’, ‘revaluation adjustments’, and ‘exchange rate adjustments’. National central banks (NCBs) report ‘reclassification adjustments’ and ‘revaluation adjustments’ to the ECB so that these non-transaction effects can be removed in the calculation of transactions. ‘Exchange rate adjustments’ are normally derived by the ECB. Transactions are calculated on a net basis, i.e. there is no requirement to identify gross financial transactions or turnover. Financial transactions should generally be measured at the transaction value – the value at which assets are acquired/disposed of and/or liabilities are created, liquidated or exchanged – which may not necessarily be the same as the price listed in the market or the fair value of the asset at the time of the transaction. The transaction value does not include service charges, fees, commissions, or similar payments for services provided in carrying out the transaction.

This Annex reviews the methodology for deriving transactions in the context of BSI statistics. Part 2 focuses on the principles for the reporting of adjustments from the NCBs to the ECB (3). Part 3 then looks at special adaptations made in the compilation framework for BSI statistics.

Further details and numerical examples are provided in the ‘Manual on MFI balance sheet statistics’ published on the ECB's website.

PART 2

Reporting of adjustments from the NCBs to the ECB

1. Underlying principles for adjustments

Reclassification and revaluation adjustments are subject to the same double-entry accounting system as outstanding amounts and are therefore balanced. Where a balancing item is required due to the different valuations which apply to the statistical, as compared to the accounting, balance sheet – i.e. a ‘statistical/accounting discrepancy’ – this should be recorded in ‘remaining liabilities’ (as a positive or negative amount, as appropriate).

Interest on deposits, loans and debt securities issued and held should be recorded on an accrual basis, but should never be recorded as a transaction with the instrument concerned. For loans and deposits this is guaranteed by the requirement specified in Part 2 of Annex II to Regulation (EU) 2021/379 (ECB/2021/2) to record accrued interest on these instruments in ‘remaining assets’ and ‘remaining liabilities’. The Regulation, however, contains no rule on the treatment of accrued interest on debt securities issued or held. In fact, accrued interest is often intrinsic to market prices and difficult to disentangle from the accounting price as it is reported in the statistical balance sheet. In the interest of coherent and cross-country comparable data, the following should be applied:

(a) if accrued interest is intrinsic to the accounting price as it is reported in the statistical balance sheet, it should be subject to a revaluation adjustment;

(b) if accrued interest is excluded from the outstanding amount of the securities to which it relates in the statistical balance sheet, it is classified under ‘remaining assets’ or ‘remaining liabilities’, and not treated as a revaluation adjustment.

This suggested treatment is also reflected in the reporting requirements laid down in this Guideline (see Part 1 of Annex II).

When a monthly adjustment is reported, it may affect the breakdowns of items reported quarterly. Consistency should be ensured between the two sets of data, i.e. where applicable, the sum of the monthly adjustments must equal the quarterly adjustment. If a threshold is established for the quarterly adjustments, or the quarterly adjustments cannot be identified in full or to the same level of detail as the monthly adjustment, the adjustment is calculated so as to avoid discrepancies with the adjustment reported for the monthly data.

2. Reclassification adjustments

‘Reclassification adjustments’ comprise any change in the balance sheet of the reference sector that arises as a result of changes in the composition and structure of the reporting population, changes in the classification of financial instruments and counterparties, changes in statistical definitions and the (partial) correction of reporting errors, all of which give rise to breaks in the series and thereby affect the comparability of two successive end-of-period outstanding amounts. Euro area enlargements can be viewed as a special case of reclassification.

NCBs report data on reclassification adjustments, as specified in this Guideline, using data directly reported by the reporting population, supervisory information, plausibility checks, ad hoc enquiries (e.g. related to outliers), national statistical requirements, information on joiners and leavers of the reporting population and any other source available to them. NCBs identify changes in outstanding amounts that are due to reclassifications and report the net amount. A net increase in outstanding amounts due to reclassifications is entered with a positive sign, a net decrease in outstanding amounts with a negative sign.

Estimates of reclassification adjustments may be made by NCBs, in particular when the information is not readily available or of poor quality. The ECB is not expected to make ex post adjustments unless the NCBs identify sharp changes due to reclassifications in the final data which cannot be corrected in due time by the NCBs. In this case the ECB may make ex post adjustments in agreement with the relevant NCB.

In principle, NCBs report ‘reclassification adjustments’ for each item specified in this Guideline. In cases where the estimated reclassification amounts are below EUR 5 million for the own balance sheet of the NCB, or below EUR 50 million for the aggregated balance sheet of other reporting agents, NCBs may report reclassification adjustment amounts of zero or as a missing value. These thresholds are intended to help the NCBs decide whether to compile adjustments or not. However, where relatively detailed information is collected regardless of the threshold, it may be counterproductive for the NCB to try to apply such a threshold. This flexibility is without prejudice to the requirement for consistency within the reported data for the reference period, and between monthly and quarterly data, as described below.

Within the limits defined by the revision policy, NCBs correct reporting errors in outstanding amounts as soon as the errors are identified. Ideally, the corrections entirely remove the error from the outstanding amounts, especially where the error affects a single period or a limited time range. In these circumstances, no break in series occurs. However, where the error affects historical data and no correction of past data is made or is made only for a limited time range, then a break occurs between the first period with the corrected figure and the last period containing the incorrect figure. In this case, NCBs identify the size of the break that occurs and enter an adjustment under ‘reclassification adjustments’. Similar practices apply to the implementation of changes of statistical definitions affecting reported data, as well as to correcting for breaks that may be due to the introduction, change or abandonment of grossing-up methods.

The boundary for treating transfers of assets as transactions is defined by the existence of two separate institutional units which act by mutual agreement. If, however, the transfers occur as a result of the creation or disappearance of an institutional unit, they should be treated as ‘reclassification adjustments’. In particular, if a merger or acquisition leads to the disappearance of one or more institutional units, all cross-positions that existed between the merging institutions are netted at the time when the units cease to exist from the system and reclassification adjustments must be reported accordingly. Corporate divisions are treated symmetrically.

3. Revaluation adjustments

‘Revaluation adjustments’ reported pursuant to this Guideline are normally compiled by NCBs on the basis of data directly reported by the reporting agents. NCBs, however, may also cover these reporting requirements indirectly (e.g. by collecting data on transactions directly) or via security-by-security data or other data reported by the reporting population and in any case are permitted to collect additional data from reporting agents as necessary.

4. Exchange rate adjustments

Movements in exchange rates against the euro that occur between end-period reporting dates give rise to changes in the value of foreign currency assets and liabilities when expressed in euro. NCBs should report assets and liabilities denominated in foreign currencies translated into euro using the ECB reference exchange rates prevailing on the day to which the data relate. As any changes in outstanding amounts resulting from movements in exchange rates represent holding gains/losses and are not financial transactions, the valuation effects need to be identified so that they can be excluded from transactions. Revaluation adjustments due to exchange rate changes may also contain valuation changes that arise from transactions in assets/liabilities, i.e. realised gains/losses; however, there are divergent national practices in this respect.

The ECB normally derives the necessary exchange rate adjustments based on the statistical information provided by NCBs. Where NCBs are in a position to compile more accurate exchange rate adjustments, they may instead agree with the ECB to transmit exchange rate adjustments which will be used by the ECB to derive transactions.

PART 3

Special rules and adaptations

1. Money market funds

The NCBs include adjustments data on money market funds (MMFs) when fulfilling their reporting obligations in respect of ‘reclassification adjustments’ and ‘revaluation adjustments’. These adjustments are also reported separately for MMFs in accordance with the dedicated quarterly reporting scheme.

NCBs report reclassification adjustments where there is a change in the MMF reporting population, as defined in Article 2 of Regulation (EU) 2021/379 (ECB/2021/2), resulting from amendments to the scope of entities authorised as MMFs in accordance with Regulation (EU) 2017/1131 of the European Parliament and of the Council (4). A change in the MMF reporting population that results from a change in a fund’s investment policy is recorded as a financial transaction and not as a reclassification. This follows from the fact that any change in investment policy has to be agreed by the investors prior to the change and is therefore seen as an active investment decision.

Article 9(6) of Regulation (EU) 2021/379 (ECB/2021/2) provides that NCBs may grant derogations to some or all MMFs in respect of the reporting of revaluation adjustments. In these cases, NCBs should nevertheless provide information on a best estimate basis where the amounts involved are significant, in accordance with Article 5(2) of this Guideline.

The calculation of revaluation adjustments on MMF assets follows the common procedure applicable to all MFIs. On the liabilities side, positive changes in the value of MMF shares/units have traditionally been considered as transactions, in parallel to the payment (as opposed to the accrual) of interest on deposits, implying that the counterpart of the revaluations on the assets side would not be ‘money market fund shares/units’ but ‘remaining liabilities’. However, with respect to cases where MMF shares/units decline in price as a result of losses on the fund’s assets, this cannot be compared to interest payments. Against this background, Table 1A of Part 4 of Annex I to Regulation (EU) 2021/379 (ECB/2021/2) includes requirements on revaluation adjustments for MMF shares/units; NCBs should use this item to balance the price revaluations on the assets side, where relevant. The allocation should be performed in such a way as to only cover the actual price revaluations that are reflected as changes in the value of MMF shares/units.

2. Individual MFI balance sheet item (IBSI) statistics

In accordance with Article 16(2) of this Guideline, NCBs report ancillary series covering revaluation and reclassification adjustments (see Part 2 of this Annex) and loan transfers on a best efforts basis.

In order to reduce the reporting burden, NCBs may apply a threshold approach when deriving the ancillary series. In particular, for where the absolute amount of the ancillary series to be reported is below the maximum of EUR 50 million and 1 % of the respective outstanding amount, i.e. threshold = max(EUR 50 million, 1 % of outstanding amount), NCBs may instead report the amount as zero or as a missing value. This threshold, which also applies to groups of credit institutions, is indicative and aims to help NCBs to decide whether to make an adjustment or not. Where the information is not readily available or is of a poor quality, the NCB may decide either to make estimates or to report a missing value.

In addition and in accordance with this Guideline, NCBs are only required to report ancillary series for credit institutions that are not core institutions to the extent that the statistical information are collected from those credit institutions in accordance with Regulation (EU) 2021/379 (ECB/2021/2). Where none of the statistical information required for reporting an ancillary series is available from the credit institutions that are not core institutions, NCBs may report a missing value.

3. POGIs and central government

NCBs report, where relevant, statistical information on POGIs and central government covering their monetary liabilities vis-à-vis euro area resident non-monetary financial institutions and their holdings of cash and securities issued by euro area MFIs in accordance with Section 6 of this Guideline. For the purpose of compiling transactions, adjustments are, in principle, also provided in line with the requirements established for MFI balance sheet statistics, although in practice changes due to exchange rate or market price changes are unlikely to occur. These data are reported as indicated in Annex VI.

(1) Regulation (EU) No 549/2013 of the European Parliament and of the Council of 21 May 2013 on the European system of national and regional accounts in the European Union (OJ L 174, 26.6.2013, p. 1).

(2) Regulation (EU) 2021/379 of the European Central Bank of 22 January 2021 on the balance sheet of credit institutions and of the monetary financial institutions sector (ECB/2021/2) (OJ L 73, 3.3.2021, p.16).

(3) The same methodology applies with respect to statistical information to be reported on the balance sheet of the ECB pursuant to Article 3(5) of this Guideline.

(4) Regulation (EU) 2017/1131 of the European Parliament and of the Council of 14 June 2017 on money market funds (OJ L 169, 30.6.2017, p. 8.).