Measuring banking systems' exposures to particular countries

BIS Quarterly Review  | 
08 June 2010

(Extract from page 20 of BIS Quarterly Review, June 2010)

The BIS consolidated international banking statistics provide a unique perspective on the exposures of national banking systems to residents of a given country. The statistics provide information on the aggregate foreign claims1 of banks headquartered in a particular location on a worldwide consolidated basis. The BIS consolidated statistics offer a more useful measure of the total risk exposure of a reporting banking system than do the BIS locational statistics, which are based on the residence principle.

The BIS consolidated international banking statistics on an ultimate risk basis are the most appropriate source for measuring the aggregate exposures of a banking system to a given country. Unlike the BIS consolidated international banking statistics on an immediate borrower basis, they are adjusted for net risk transfers. For example, suppose that a Swedish bank extends a loan to a company based in Mexico and the loan is guaranteed by a US bank. On an immediate borrower basis, the loan would be considered a claim of a Swedish bank on Mexico, as the immediate borrower resides in Mexico. On an ultimate risk basis, however, the loan would be regarded as a claim of a Swedish bank on the United States since that is where the ultimate risk resides.

To take a concrete example, one can use the BIS consolidated statistics on an ultimate risk basis to find out the size of exposures of Canadian banks to residents of Denmark at the end of the most recent quarter for which data are available. The intersection of reporting country Canada (in the column headings) and vis-à-vis country Denmark (in the row headings) in BIS Table 9D2 indicates that the consolidated foreign claims of Canadian banks on Denmark at the end of the fourth quarter of 2009 were $2,068 million. This number represents the aggregate claims of all Canadian-owned bank branches and subsidiaries around the world on residents of Denmark. Therefore, it would include a loan extended by the London branch of a Canadian bank to a company based in Copenhagen (assuming that the loan is not guaranteed by another entity based outside Denmark). Conversely, it would not include a loan extended by the Toronto branch of a US bank to the same Copenhagen-based company, as this loan would represent a claim of a US bank, not a Canadian bank.

Developments in the banking world, such as mergers, acquisitions and restructurings, often lead to changes in the reporting populations of the BIS consolidated banking statistics. That is why, when tracking period to period changes in exposures, it is important to take into account all breaks in series that have occurred during the respective time span before making any inferences or conclusions3 For example, as a result of a restructuring that took place during the fourth quarter of 2009, a Swiss bank was reclassified as a Greek bank. As a consequence, its claims on Greece were no longer included in the consolidated figures for Swiss banks. This change in the reporting population of Swiss banks caused most of the $74.9 billion decline (from $78.6 billion to $3.7 billion) in the claims of Swiss banks on residents of Greece between the third and the fourth quarter of 2009. If one compared the numbers for these two quarters in BIS Table 9D disregarding the break in series in the fourth quarter, one would wrongly conclude that there was a precipitous decline in the foreign claims of Swiss banks on Greece when, in fact, there was no sizeable change in the stock of claims held by the bank in question.

Care is also necessary when using the BIS consolidated international banking statistics to make inferences about how exposed banking system X is to a potential sovereign debt restructuring in country Y. The numbers reported in BIS Table 9D represent the consolidated foreign claims of a given banking system on all residents (ie public sector, banks and non-bank private sector) of a country. Therefore, the fact that banking system X has a large amount of foreign claims on the residents of country Y does not necessarily imply that the exposures of banking system X to the public sector of country Y are large.

1 Foreign claims comprise loans, deposits placed, holdings of debt securities, equities and other on-balance sheet items. Note that foreign claims do not include other exposures, such as derivative contracts, guarantees and credit commitments.
2 Consolidated foreign claims of reporting banks, ultimate risk basis,
3 The BIS communicates all important breaks in the press release that accompanies the publication of the data. In addition, a separate document, which is updated every quarter and is available on the BIS website (, provides details on the period of the change, the reporting country, the reason for the break and the net changes in aggregate assets and liabilities that resulted from it.