This paper shows that official statistics substantially underestimate the net foreign asset positions of rich countries because they fail to capture most of the assets held by households in offshore tax havens. Drawing on systematic anomalies in portfolio investment positions and a unique Swiss dataset, I find that 8% of the global financial wealth of households is held in tax havens, 6% of which goes unrecorded. On the basis of plausible assumptions, accounting for unrecorded assets turns the eurozone, officially the world's second largest net debtor, into a net creditor. It also reduces the U.S. net debt significantly. The results shed new light on global imbalances and challenge the widespread view that, after a decade of poor-to-rich capital flows, external assets are now in poor countries and debts in rich countries. I provide concrete proposals to improve international investment statistics.

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The Missing Wealth of Nations: Are Europe and the U.S. net Debtors or net Creditors?

This paper evaluates different models for the short-term forecasting of real GDP growth in ten selected European countries and the euro area as a whole. Purely quarterly models are compared with models designed to exploit early releases of monthly indicators for the nowcast and forecast of quarterly GDP growth. Amongst the latter, we consider small bridge equations and forecast equations in which the bridging between monthly and quarterly data is achieved through a regression on factors extracted from large monthly datasets. The forecasting exercise is performed in a simulated real-time context, which takes account of publication lags in the individual series. In general, we find that models that exploit monthly information outperform models that use purely quarterly data and, amongst the former, factor models perform best. JEL Classification: E37, C53.

Short-term forecasting of GDP using large monthly datasets: a pseudo real-time forecast evaluation exercise

https://hal-sciencespo.archives-ouvertes.fr/hal-01064263/document

Financial Stability and Economic Performance

This paper analyses the impact of sovereign wealth funds (SWFs) on global financial markets. It presents back-of-the-envelope calculations which simulate the potential impact of a transfer of traditional foreign exchange reserves to SWFs on global capital flows. If SWFs behave as CAPM-type investors and thus allocate foreign assets according to market capitalisation rather than liquidity considerations, official portfolios reduce their “bias” towards the major reserve currencies. As a result, more capital flows “downhill” from rich to less wealthy economies, in line with standard neoclassical predictions. More specifically, it is found that under the assumption of SWFs investing according to market capitalisation weights, the euro area and the United States could be subject to net capital outflows while Japan and the emerging markets would attract net capital inflows. It is also shown that these findings are sensitive to alternative assumptions for the portfolio objectives of SWFs. Finally, the paper discusses whether a change in net capital flows triggered by SWFs could have an impact on stock prices and bond yields. Based on an event study approach, no evidence can be found for a stock price impact of non-commercially motivated stock sales by Norway’s Government Pension Fund. JEL Classification: F30, F40, G15.

The impact of sovereign wealth funds on global financial markets

If sovereign wealth funds act similarly to private investors and thus allocate foreign assets according to market capitalisation rather than liquidity considerations, official portfolios reduce their “bias” towards the major reserve currencies — the US dollar and the euro. As a result, more capital flows “downhill“ from rich to less wealthy economies. In this scenario, the euro area and the United States would be subject to net capital outflows while Japan and the emerging markets would attract net capital inflows. The potential implications of a rebalancing of international capital flows for stock prices, interest rates and exchange rates remain uncertain, however.

https://www.ecb.europa.eu/pub/pdf/scpops/ecbocp91.pdf

Shadow banking, as one of the main sources of financial stability concerns, is the subject of much international debate. In broad terms, shadow banking refers to activities related to credit intermediation and liquidity and maturity transformation that take place outside the regulated banking system. This paper presents a fi rst investigation of the size and the structure of shadow banking within the euro area, using the statistical data sources available to the ECB/Eurosystem. Although overall shadow banking activity in the euro area is smaller than in the United States, it is significant, at least in some euro area countries. This is also broadly true for some of the components of shadow banking, particularly securitisation activity, money market funds and the repo markets. This paper also addresses the interconnection between the regulated and the non-bank-regulated segments of the financial sector. Over the recent past, this interconnection has increased, likely resulting in a higher risk of contagion across sectors and countries. Euro area banks now rely more on funding from the financial sector than in the past, in particular from other financial intermediaries (OFIs), which cover shadow banking entities, including securitisation vehicles. This source of funding is mainly shortterm and therefore more susceptible to runs and to the drying-up of liquidity. This finding confirms that macro-prudential authorities and supervisors should carefully monitor the growing interlinkages between the regulated banking sector and the shadow banking system. However, an in-depth assessment of the activities of shadow banking and of the interconnection with the regulated banking system would require further improvements in the availability of data and other sources of information.

Shadow Banking in the Euro Area: An Overview

Custody is, in essence, a service consisting in holding (and normally administering) securities on behalf of third parties. In step with the growth of sophisticated financial markets, custody has evolved into a complex industry no longer characterised by physical safekeeping but by a range of information and banking services. Given the multi-tier structure of the industry, custody services are provided by a variety of intermediaries. This paper describes the development of the custody industry and the structure of the custody services market. It also discusses the risks involved in custody and the challenges the industry is facing, particularly in the European context.

https://www.ecb.europa.eu/pub/pdf/scpops/ecbocp68.pdf

The Securities Custody Industry

Shadow banking, as one of the main sources of financial stability concerns, is the subject of much international debate. In broad terms, shadow banking refers to activities related to credit intermediation and liquidity and maturity transformation that take place outside the regulated banking system. This paper presents a first investigation of the size and the structure of shadow banking within the euro area, using the statistical data sources available to the ECB/Eurosystem. Although overall shadow banking activity in the euro area is smaller than in the United States, it is significant, at least in some euro area countries. This is also broadly true for some of the components of shadow banking, particularly securitisation activity, money market funds and the repo markets. This paper also addresses the interconnection between the regulated and the non-bank-regulated segments of the financial sector. Over the recent past, this interconnection has increased, likely resulting in a higher risk of contagion across sectors and countries. Euro area banks now rely more on funding from the financial sector than in the past, in particular from other financial intermediaries (OFIs), which cover shadow banking entities, including securitisation vehicles. This source of funding is mainly shortterm and therefore more susceptible to runs and to the drying-up of liquidity. This finding confirms that macro-prudential authorities and supervisors should carefully monitor the growing interlinkages between the regulated banking sector and the shadow banking system. However, an in-depth assessment of the activities of shadow banking and of the interconnection with the regulated banking system would require further improvements in the availability of data and other sources of information. JEL Classification: C22, E27

Shadow banking in the Euro area: an overview

The paper analyses the current national and international regulatory regimes relevant for European banks, CSDs and ICSDs, and compares them with the requirements in order to answer the following questions: Is there any overlap between the provisions of the CPSS-IOSCO. Recommendations and the existing international and national requirements to which European SSSs and banks are subject? Are current provisions equivalent or more restrictive (super-equivalent) for banks and CSDs? In what respect? Does the overlap between the CPSS-IOSCO. Recommendations and existing regulation result in double requirements? This paper presents the results of this comparative analysis and attempts to answer such questions.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1005938_code485639.pdf?abstractid=1005938&mirid=1

Prudential and Oversight Requirements for Securities Settlement

This paper documents the importance of nonbanks in retail payments in the United States and in 15 European countries and analyses the implications of the importance and multiple roles played by nonbanks on retail payment risks. It shows that nonbanks play multiple roles along the whole payment processing chain of five main payment instruments (card payments, electronic cheques, credit transfers, direct debits and e-money and other pre-funded/stored value instruments). The importance of nonbanks is assessed as prominent in the United States across all the considered payment instruments, and high and growing in Europe where however differences among the various countries and payments classes persist. In Europe the importance of nonbanks is expected to grow in the future, driven by industry and regulatory developments. The paper argues that nonbanks’ presence has shifted the locus of risks in retail payments toward a higher relevance of operational risk in its various forms (malfunctioning, data security, and data protection), as well as higher relevance of fraud risk and system-wide impact of disruptions at key providers concentrating processing for important payment market segments. Banks have become increasingly dependent on nonbank service providers, and the adoption of new technologies in payments processing, particularly as regards communication networks, while on the one hand supporting mitigation of credit and liquidity risks connected to payments authorisation, increases the number of possible points along the processing chain that may be vulnerable to fraud and illicit use. The paper reviews the main regulatory safeguards in place, and concludes that there may be a need to reconsider some of them in view of the growing role of nonbanks and of the global reach of risks in the electronic era. * Terri Bradford, Fumiko Hayashi, Christian Hung, Richard J. Sullivan, Zhu Wang, and Stuart E. Weiner are members of the Payments System Research function of the Federal Reserve Bank of Kansas City. The views expressed in this paper are those of the authors and do not necessarily reflect the views of the Federal Reserve Bank of Kansas City or the Federal Reserve System. † Simonetta Rosati is with the European Central Bank Oversight Division. The views expressed in this paper are those of the author and do not necessarily reflect the views of the ECB or the Eurosystem.

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Simonetta Rosati

Papers

Shadow Banking in the Euro Area: An Overview

The Securities Custody Industry

Shadow banking in the Euro area: an overview

Prudential and Oversight Requirements for Securities Settlement

Nonbanks and Risk in Retail Payments.