Transcript SLC Meeting Report of Working Group on Data Collection

• Paper for ISI Congress, Dublin 2011
 Describes banking interventions in Ireland
 Treatment in National Accounts (ESA95/MGDD)
 Specific methodological issues
Chart 2: Irish Government Deficit
10
-10
-20
-30
Deficit excluding support to banks
Impact of support to banks
Total deficit
2011F
2010
2009
2008
-40
2007
% of GDP
0
Chart 1: Irish Government Debt
Methodological issues
• Guarantees
• Capital injections into publicly owned banks
• Classification of units (bad banks)
• Re-routing of transactions
Government guarantees
• Off-balance sheet contingent liabilities
or
• Government Debt
EU Government guarantees linked to the financial crisis (end March 2011)
EU Member State
Value (€bn)
% of GDP
Ireland
Greece
UK
Cyprus
Belgium
Denmark
193
58
417
3
56
26
125
25
25
17
16
11
Euro area (EA17)
EU 27
602
1,065
7
9
Source: Eurostat
Government guarantees
• SNA93/ESA95
 Guarantees contingent liabilities
 Exceptionally in the MGDD can be Government Debt
• SNA08/ESA10
 Standardised guarantees
 One-off loans still contingencies but
Government guarantees
Para 17.212 of SNA:
“As an exception, one-off guarantees granted by governments to
corporations in certain well-defined financially distressed
situations and with a very high likelihood to be called are treated
as if these guarantees are called when the financial distress is
recognised”
Capital injections into public units
• SNA93/ESA95
 Injections to cover accumulated losses – Capital transfer
 Other injections as owners – Equity
• SNA08/ESA10/MGDD
 Injections to cover accumulated losses – Capital transfer
 Other injections as owners – Equity or capital transfer,
depending on expected return. SNA08 less prescriptive
than ESA10/MGDD which looks for a sufficient rate of
return
Classification of public units
• Private /Public control
 Concept more refined in new SNA/ESA, but still
judgemental.
• Market/Non-market
 Also more refined in new SNA/ESA. ESA still more
prescriptive (50% rule)
Classification of publicly controlled
bad banks within EU
• Private /Public control?
 Under very restrictive conditions, financial
corporations controlled by Government may be classified
outside of General Government Sector if majority
privately owned
 Only during the financial crisis
Classification of publicly controlled
bad banks within EU
• Market/Non-market
 Application of ESA 50% rule to financial corporations
difficult
 Bad bank - Defeasance structure or MFI?
 In ESA, MFI’s based on list maintained by ECB for
statistical reporting and Eurosystem operations
Classification of publicly controlled
bad banks within EU
• Market/Non-market
 Old bank in run down mode may have banking
licence and be on MFI list (Anglo)
 Newly established bad bank may not have
banking licence (Northern Rock)
 ECB MFI list used for statistical reporting but also
Eurosystem
 Comparability may be improved by re-routing
transactions so classification becomes secondary
Summary
• During financial crisis the scale of government
interventions in banks very large
• Borderline cases - Inconsistencies in recording of
capital injections and in classification of units.
• Effort to improve transparency of reported data
especially by Eurostat
• New SNA08/ESA10 does not fully resolve problems.
Economic reality the key but can be difficult to
implement