Breaks in series in the BIS international banking statistics in the fourth quarter of 2010
(Extract from page 19 of BIS Quarterly Review, June 2011)
A break in series refers to a change in reporting methodology or in reporting population during a given period. Reporting banks provide pre- and post-break values for the outstanding stocks of claims as of the end of each period in which such a break occurs.1 The end-of-period stocks of claims published by the BIS are based on the latest reported post-break values. The changes in the stocks of claims that took place during a period are adjusted for breaks by subtracting the difference between the post- and pre-break values from the difference between the unadjusted stocks of claims as of the end of the current and the previous period. Such adjustments are crucial for understanding the extent to which changes in the stocks of outstanding claims relate to normal business activities of reporting institutions.
Breaks in series had a large impact on the BIS international banking statistics in the fourth quarter of 2010. Some of the largest breaks were reported by German and Irish banks. A large share of these breaks occurred due to transfers of assets and other potential exposures from BIS reporting banks to asset management companies ("bad banks").2 In general, such asset management companies do not report in the BIS international banking statistics since they are considered to be non-banks. As a consequence, transfers of assets from BIS reporting banks to bad banks result in declines in the foreign exposures reported in the BIS international banking statistics. These are not recorded as changes in stocks, but as breaks in series. In the last quarter of 2010, significant breaks due to such transfers were recorded in both the BIS consolidated and locational banking statistics.
In the BIS consolidated banking statistics, German banks reported a break in series of -$24 billion in foreign claims on an immediate borrower basis and -$18 billion in foreign claims on an ultimate risk basis. In the BIS locational statistics, banks located in Germany reported a break of -$112 billion in unconsolidated cross-border claims. Most of the latter break was due to transfers of inter-office cross-border assets to the domestic asset management company FMS Wertmanagement. Such inter-office positions are excluded from the BIS consolidated banking statistics. That explains the different break sizes in the locational and the consolidated positions reported by Germany.
Another large break was reported by Ireland. The restructuring of a large international banking group and the closure of domestic offices by a foreign bank were jointly responsible for a break of -$174 billion in Irish banks' consolidated foreign claims on an immediate borrower basis and -$170 billion in their consolidated foreign claims on an ultimate risk basis.3 In the BIS locational statistics, banks resident in Ireland reported a break of -$140 billion in unconsolidated cross-border claims.
Finally, in the case of France, there was a significant break in series that resulted from a change in the methodology used by the reporting central bank. A French bank controlled by a foreign non-bank financial company, whose accounts are prudentially supervised by the competent foreign authority, was reclassified from a consolidated domestic bank to an unconsolidated foreign bank in the French data. This reclassification had no impact on the aggregate BIS consolidated banking statistics. However, it did generate a break in the time series of French domestic banks equal to -$330 billion in foreign claims on an immediate borrower basis and -$336 billion in foreign claims on an ultimate risk basis.
1 Historical lists of breaks in series are available at http://www.bis.org/statistics/bankstats.htm for each of the datasets.
2 A "bad bank" is a financial institution created to hold non-performing assets and other potential exposures.
3 These figures represent preliminary estimates. Revisions are likely to follow.