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The principal difference between international banking and global banking

The latest enhancements to these statistics introduce information about banks' domestic business and add more details about the counterparties with which banks interact.

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Taken together, the enhancements enrich analysis of banks' lending and funding and of their role in the transmission of shocks across countries. Banks have become larger and more complex over the past 25 years, offering multiple services and products through operations spanning the globe.

Some rely heavily on wholesale or non- deposit sources of funding, often from non-bank financial intermediaries about whom information is sparse. Such changes in the international financial system were not well captured in historical data BIS 2011. This made it hard to analyse where, in which instruments and on which side of banks' balance sheets vulnerabilities might emerge, and harder still to assess how vulnerabilities in one part of the financial system might affect other parts.

To a large extent, the enhancements were informed by the Great Financial Crisis of 2007-09, which revealed critical gaps in the information available to monitor and respond to financial stability risks. First, they expand the coverage of banks' balance sheets to include their domestic positions, not just their international activities.

Second, they provide more information about the sector of banks' counterparties, in particular banks' exposures to and reliance on funding from non-bank financial counterparties. The remainder of this feature explains the enhancements in more detail and discusses a few analytical uses of the new data.

Overview of the enhancements The IBS comprise two data sets - the locational banking statistics LBS and the consolidated banking statistics CBS - each collected using a different methodology. Jointly, they are a key source of information for assessing risks to financial stability, understanding banks' role in the transmission of shocks across borders, and monitoring changes in internationally active banks' business models.

The principal use of the LBS is to analyse capital flows between countries. They capture the positions of banking offices located in 44 reporting countries on counterparties resident in each of over 200 countries.

The LBS are collected following the same principles as national accounts and balance of payments, meaning that their compilation is based on the residence of entities and the data are not adjusted for intragroup or intrasector links. The CBS provide measures of internationally active banks' country risk exposures.

In contrast to the LBS, the CBS are compiled on a nationality basis, using the consolidated approach followed by banking the principal difference between international banking and global banking. The business of offices that are part of the same banking group is consolidated and reported by the country where the controlling parent entity is located.

The enhancements approved by the CGFS focused on five areas. First, in both the LBS and the CBS, the coverage of banks' balance sheets was extended to domestic positions; previously, the data sets captured only banks' international business.

In the LBS, banks are now asked to report their local positions - positions against residents of the country where they are located - in local currency, to complement the existing data on local positions in foreign currencies. Second, in the CBS, data for the funding side of banks' consolidated balance sheets were introduced. Previously, very little liability-related information was collected in the CBS: Since end-2013, banks have reported their total liabilities on a consolidated basis, with a breakdown by instrument.

The main improvement was to distinguish between non-bank financial counterparties and non-financial counterparties; previously, the two sectors were grouped together as non-bank entities. However, the reporting of the latter breakdown is encouraged, not required, and thus is incomplete as discussed below.

In the LBS, the breakdown of counterparties classified as banks was also improved. Since end-2013, banks have reported different types of bank counterparties - related banking offices or intragroup affiliatesunrelated banks and central banks - by residence of the counterparty.

In particular, since end-June 2012, four dimensions of data have been jointly reported: Box the principal difference between international banking and global banking explains how these new data help clarify the geography of banks' operations.

BREAKING DOWN 'Universal Banking'

The more granular information by nationality of the reporting bank is often composed of data reported by very few banks. For example, there are many banks in the United Kingdom that have claims on South Africa, and there are several Australian banks that have offices in the United Kingdom, but there may be only one or two Australian banks in the United Kingdom that have claims on South Africa.

If an aggregate comprises data from only one or two banks, then its disclosure risks revealing proprietary information about those banks' activities. Consequently, reporting authorities classify a significant part of the enhanced data that they report to the BIS as confidential.

What is 'Universal Banking'

Such data cannot be disclosed by the BIS, but they can serve as building blocks in the construction of published aggregates that combine data from many reporting countries.

While the enhancements made the residence and nationality of reporting banks and the residence of counterparties available simultaneously in the LBS, they did not make the distinction between data by residence and nationality redundant. In particular, the instrument breakdown - loans and deposits, debt securities and other instruments - continues to be reported only for LBS by residence Table 2. The enhancements also refined the IBS in a number of smaller ways. Banks reporting the LBS are now encouraged to provide an expanded currency breakdown.

To complement the LBS by nationality of reporting bank, data by type of bank - branch or subsidiary - are also reported, although without a detailed counterparty country breakdown of cross- border positions. In addition, the quality of the data was improved through closer alignment of reporting practices with the guidelines. For example, authorities in some reporting countries refined sectoral or other classifications. Such methodological changes have sometimes led to significant changes in reported outstanding positions.

Finally, the BIS comprehensively revised the tables presenting the IBS so as to include data collected as part of the enhancements Box 2. The enhancements also prompted the BIS to revisit the way in which some aggregates are calculated or presented, resulting in changes to previously the principal difference between international banking and global banking data Box 3.

Putting banks' international business in context The enhanced IBS provide a more comprehensive picture of the size and scope of internationally active banks' activities. This enables better analysis of the sources and uses of funds and the importance of international business for banks of different nationalities.

The new data on domestic positions can be used to understand the relative importance of internationally active banks in the provision of total bank credit to borrowers in a particular economy. Previously, such analysis was limited to selected components of bank credit. Table 3 illustrates the enhanced LBS using data for Canadian banks. Box 1 The geography of international banking Historically, the BIS international banking statistics have provided two alternative views of the geographical composition of banks' balance sheets: The enhancements to the LBS combine these two views to show the counterparties of banking groups by the location of the groups' offices.

In particular, the enhancements make it possible to see simultaneously the location of banking groups' offices, the nationality of these groups and the residence of their counterparties Table 2. This simultaneous view supports deeper analysis of the transmission of shocks across countries through banks. Many internationally active banks are complex organisations, with branches and subsidiaries in countries around the world and transactions in multiple currencies and instruments.

Owing to this complexity, neither the office-level nor group-level view is sufficient on its own to elucidate links between sectors and countries Fender and McGuire 2010McCauley et al 2012. To see why, it helps to visualise the operational structure of a hypothetical institution. BIGBANK, shown in Graph A below, represents any multinational financial institution with a large balance sheet and offices in different countries connected via intragroup funding.

In turn, BIGBANK's liabilities are a combination of euro-denominated deposits, wholesale US dollar borrowing, commercial paper issuance, petrodollar deposits and euro intragroup funds swapped for dollars. In such data, offices that are dollar providers to the foreign exchange swap or wholesale interbank markets are netted against those that are dollar borrowers, yielding an overall net borrowing figure for the consolidated entity.

This netting implicitly assumes that the principal difference between international banking and global banking in one location can immediately be used elsewhere - in other words, that the institution's "internal capital market" is frictionless.

Universal Banking

However, this is unlikely to be the case, given that assets would have to be liquidated and hedges unwound to free up funds - a potentially costly process during a crisis. Moreover, a host country's capital and liquidity regulations might prevent an office from adjusting its balance sheet to support affiliates elsewhere. As this example illustrates, to understand how shocks might propagate across sectors and borders, it is important to take into account the complexity of banks' operations.

Data on the geography of banks' operations that capture office- and group-level views simultaneously can shed light on this complexity.

Domestic positions also help to gauge the importance of international business for banks of different nationalities.

Banks with large domestic operations may be less vulnerable to economic or financial difficulties in foreign countries. The left-hand panel of Graph 1 shows, for internationally active banks of selected nationalities, consolidated foreign claims as a share of total claims. Reporting banks headquartered in Singapore, Sweden, Switzerland and the United Kingdom stand out as having internationally oriented balance sheets, with foreign claims accounting for more than half of their total claims at end-March 2015.

When using the data on domestic positions, several caveats should be kept in mind. The LBS and CBS are reported by internationally active banks, ie those with significant foreign currency or cross-border business. Banks with negligible international business may have sizeable domestic positions.

Thus the assets and liabilities of LBS- and CBS-reporting banks may understate those for the population of banks in a given country or of a given nationality. Also, definitions and balance sheet coverage in the IBS might differ from those applied in other data sets, such as national monetary and financial statistics MFS. Box 2 New tables on the international banking statistics The BIS comprehensively revised the tables on the international banking statistics. The new tables include more data, notably new data collected as part of the enhancements to the locational banking statistics LBS and the consolidated banking statistics CBSand present these data in a more user-friendly way.

In particular, the BIS introduced country tables that bring together in one table data for banks' positions on a given country that were previously spread across several tables.

Each section starts with global tables that summarise the data, followed by country tables with more details. While the country tables in the principal difference between international banking and global banking PDF version of the Bulletin show only selected countries, tables covering additional countries are available on the BIS website www. Table A1 summarises the different breakdowns available: Table A2 shows the sectoral composition of LBS-reporting banks' claims and liabilities by location of the bank, ie positions of banks in a given reporting country on all counterparties abroad.

Table A3 shows the sectoral composition of claims and liabilities on counterparties in over 200 individual countries, ie cross-border positions of all LBS-reporting banks on counterparties in a given country. Table A4 shows the sectoral composition of cross-border positions for banks of a given nationality.

For each table, data on amounts outstanding and break- and exchange rate-adjusted changes are published. The BIS plans to publish additional data in these tables in the future as their quality and completeness improve. Table A8 presents LBS-reporting banks' claims and liabilities on the central bank sector. Tables B1 to B3 provide an overview of the CBS reported by banks of different nationalities, albeit without any details by country of the counterparty.

Table B1 summarises the total claims of CBS-reporting banks, distinguishing between domestic and foreign claims. Table B2 shows foreign claims on an immediate counterparty basis, including a breakdown of the international component of claims by sector and remaining maturity. Table B3 presents foreign claims and other potential foreign exposures the principal difference between international banking and global banking an ultimate risk basis.

Country table B4 presents bilateral CBS for banks of different nationalities on counterparties in a given country. While the Bulletin shows data for 29 countries, data for over 200 countries are available on the BIS website. Table B4 distinguishes between foreign banks and domestic banks.

The term "foreign banks" refers to banks headquartered abroad or, more precisely, controlled by parents abroad. These are mostly banks from CBS-reporting countries, but include the unconsolidated positions of banking offices located in CBS-reporting countries and headquartered elsewhere.

Domestic banks are those headquartered in the country. For example, in the table for Japan, the claims of Japanese banks on residents of Japan are shown under domestic banks, in the row labelled "Worldwide offices consolidated ". Under foreign banks, the row for Japan is blank.

An explanation of where to find data from the old tables in the new tables is available on the BIS website www.