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NACDD BDB on NGROUP1

Created By: Sanjiv Mahajan on 18/03/2011 at 17:29









Title: Note of SPV meeting 12 Feb








Categorisation

International Coordination\ESA Revision






Note for the record
Phil

Thanks. My take on this is that SNA08 and ESA10 in its current form clearly say that resident SPVs should be consolidated with the parent bank if they lack autonomy (as they generally do). So moving into line with BoE's reporting changes is defensible on the updated guidelines as they stand, as well as ESA95. At the same, I'll re-jig this note Notes Link to say that ECB + BoE and other central banks will press to get ESA10 amended so that all SPVs should go into S.127 (captive financial institutions).


Sanjiv, is it likely that this kind of amendment to ESA10 could get through?
Hugh




Philip Stokoe

02/03/2011 11:08



To: Hugh Skipper/IOSD/BSG/NEWPORT/ONS@ONS

cc: David Hobbs/OFD/BSG/NEWPORT/ONS@ONS

Subject: [PROTECT] - Re: Note of SPV meeting 12 FebNotes Link



Hi Hugh,
Thanks for sending this on.


Interesting set of comments. Looking again at the draft ESA 10, I can see where Martin is coming from. There is a new FinCos sub sector included S.127 Capitve Financial Institutuions and money lenders (defined in paragraphs 2.98-2.99) that includes:
"c) SPEs that qualify as institutional units and raise funds in open markets to be used by their parent corporation;"

However, the key part of that statement is "that qualify as institutional units". The draft ESA 10 states, in paragraphs 2.21 - 2.26 that bodies without autonomy should rather be treated as "artificial subsidiaries" and should be consolidated with their parent.


So, under ESA 10 bank SPVs can either
(a) be judged to have autonomy of decision and a degree of independence, in which case they should be classified as S.127 Captive Financial Institutions, and transactions between them and their parent banks should show as flows between them, or

(b) be judged to lack independence, in which case they should be fully consolidated with the parent bank - as they'd be considered an artificial subsidiary.


Under ESA 95 the same principal applies, except under ESA 95 if autonomous they are S.123 OFIs, and if not they should be consolidated with the parent bank.
My issue is, the bank appear to want to partially consolidate, which makes no sense to me for either ESA 95 or ESA 10!
On the paper, comments / input welcome - but no desperate hurry from my perspective - happy to chat if you like!
Phil
Phil Stokoe | National Accounts Classification | Public Sector Division | Office for National Statistics | Government Buildings | Cardiff Road | Newport | Wales | NP10 8XG | Room 2.164 | Phone: 01633 455805 | Internal Extension: 5805





Hugh Skipper

02/03/2011 10:41




To: Philip Stokoe/NEWPORT/ONS@ONS

cc: David Hobbs/OFD/BSG/NEWPORT/ONS@ONS

Subject: [PROTECT] - Note of SPV meeting 12 Feb



Hi Phil


I've just had this from Martin Udy at BoE. Looking at his comments on para 4, maybe there's more disagreement between ONS and BoE about the interpretation of SNA08/ESA10 than I picked up from the meeting. I originally said SNA08/ESA10 make it clearer that SPVs should be consolidated if they've no autonomy which I still think is the correct reading of what ESA10 actually says.
By the way do you need input from me for this asap? Notes Link
Hugh
----- Forwarded by Hugh Skipper/IOSD/BSG/NEWPORT/ONS on 02/03/2011 10:12 -----





Martin.Udy@bankofengland.gsi.gov.uk

01/03/2011 19:25




To: Hugh Skipper/IOSD/BSG/NEWPORT/ONS@ONS, Perry.Francis@bankofengland.gsi.gov.uk, Heeral.Chhatralia@bankofengland.gsi.gov.uk, Anjli.Shah@bankofengland.gsi.gov.uk, Michael.Lyon@bankofengland.gsi.gov.uk

cc: David.England@bankofengland.gsi.gov.uk, Matt.Davies@bankofengland.gsi.gov.uk

Subject: RE: [PROTECT] - Note of SPV meeting 12 Feb



Hi Hugh,


Sorry it has taken so long to get back on these but my suggested amendments are attached. In some cases they are contradictory to your original meaning as I think we are still fundamentally opposed on our views as to the correct treatment of SPVs under ESA 10. If you don't find the changes acceptable I think we will just need to remove references to views on interpretation of ESA 10.

Either way I think it is worth me reiterating that I see the ECB approach of treating them as separate institutional units under ESA 10 is correct. If you wanted to consolidate for National Accounts then I think our position would possibly be that ONS would need to collect data separately from SPVs to consolidate in the compilation process. Our reporters have said they are unable to report on a consolidated basis when this was discussed in the past and I'm not sure we have the powers to collect data from anything other than the MFI legal entity.

Thanks.
Martin

Martin Udy


Manager
Monetary Statistics | MFSD | HO-4 B-D
Bank of England | Threadneedle Street | London EC2R 8AH | +44 20 7601 4731
martin.udy@bankofengland.co.uk

Sanjiv - if it is possible to raise at this late stage we think there could be an issue with contradictory guidance in the ESA on the treatment of SPVs. It appears on the one hand there is guidance to consolidate SPVs with their parent if they do not have autonomy of decision making whilst on the other hand there is a requirement to be able to produce a separate dataset for SPVs (FVCs). Our understanding is that the ECB are requiring euro area countries to produce an SPVs dataset so are thinking to focus on that requirement but any guidance on potential for clarification would be good.







NACDD BDB on NGROUP1

Created By: Sanjiv Mahajan on 18/03/2011 at 17:54









Title: Note of SPV meeting 12 Feb















Response
Note for the record



Sanjiv Mahajan

14/02/2011 18:56



To: Hugh Skipper/IOSD/BSG/NEWPORT/ONS@ONS

cc:

Subject: Re: Link Message: Banking Special Purpose Vehicles (SPVs) - Classification Paper - FinalNotes Link



Dear Hugh,


Apologies I could not pop through last week - just catching up on emails!!
How can I help?
This week, I am in Newport on Friday.
Sanjiv





Hugh Skipper

01/02/2011 16:06




To: Sanjiv Mahajan/NAD/MESAG/LONDON/ONS@ONS

cc:

Subject: Link Message: Banking Special Purpose Vehicles (SPVs) - Classification Paper - Final



Hi Sanjiv

Would it be ok to pick your brains on this sometime when you're in Npt? (Ideally in the next week or so).
thanks

Hugh


----- Forwarded by Hugh Skipper/IOSD/BSG/NEWPORT/ONS on 01/02/2011 16:05 -----





Hugh Skipper

01/02/2011 15:40



To: Philip Stokoe/NEWPORT/ONS@ONS

cc: Damian Whittard/NEWPORT/ONS@ONS, John Bundey/BOPD/MESAG/LONDON/ONS@ONS, Daniel Wisniewski/NAD/MESAG/NEWPORT/ONS@ONS

Subject: Re: Link Message: Banking Special Purpose Vehicles (SPVs) - Classification Paper - FinalNotes Link



Phil


Yes you're right, NNUT and NLRH will be reflecting securitisation activities up to q1 2010 (and covered bond entities for mortgages up to q2 09) as genuine sales from MFIs to OFIs. After those points, BoE brought the affected loans onto to the banks' balance sheets. Where the SPV/covered bond entity is UK-resident, I think we're agreed this is a step in the right direction from an ESA standpoint. But as we know, a minority of the loans now moved into NNUT are securitised with overseas SPVs (and I think BoE should be able to quantify).
BoE's reporting changes mean there are step changes at q2 09 and q1 10 in the relevant levels series (incl NNUT and NLRH), but not in the corresponding flows. BoE adjust the flows to remove the effect of reporting changes. In ONS we've also made adjustments to remove the discontinuities from the corresponding interest paid/received in the DIM system and from the FISIM.
Having spoken to Damian it looks like what you're saying about the BoP issues is right. Damian will check if/how overseas securitisation entiities are currently captured in FDI.
I think the main other issues we need to clarify are:

  • how should we treat the interest payments/receipts (in the DIM system) associated with loans securitised to overseas SPVs? E.g. should we be moving mortgage interest payments to rest of world?

  • how should we treat the FISIM from loans securitised with overseas SPVs? Personally, I agree with Martin Udy from BoE that it should be attributed to UK MFIs as they're the entities that are actually providing the intermediation service/producing the FISIM output.

  • should we adjust the balance sheet levels to remove the discontinuities from changes in SPV/covered bond reporting? I think it's ok to be consistent with BoE and only adjust the flows.

Hope this helps!

Hugh





Philip Stokoe

01/02/2011 08:13



To: Hugh Skipper/IOSD/BSG/NEWPORT/ONS@ONS, David Hobbs/OFD/BSG/NEWPORT/ONS@ONS

cc: Damian Whittard/NEWPORT/ONS@ONS, John Bundey/BOPD/MESAG/LONDON/ONS@ONS

Subject: Re: Link Message: Banking Special Purpose Vehicles (SPVs) - Classification Paper - FinalNotes Link



Hugh,
I've been thinking more about the whole issue of SPVs, and especially those created as securitisation vehicles for mortgage lending, and wanted to try and understand what might already be in the accounts.


I was talking this through with Dave Hobbs yesterday, and we had a look at Blue Book. I think the accounts currently record the securitisations as if they were genuine sales from the MFI sector (where banks and building societies) to the OFI sector (where SPVs would typically be classified).
If you look at tables 4.2.9 and 4.3.9 in Blue Book (for MFIs and OFIs respectively) you'll see lines for "AF.422 loans secured on dwellings". The two tables show an increase in the balance of loans secured on dwellings for each sector - but whereas the MFI balance has risen from £493 bn to £795bn (a rise of 60% or so) the OFI balance has risen from £39bn to £426bn (a rise of almost 1000%) The CDIDs for these two lines are NNUT and NLRH respectively
My guess is that this reflects the securitisation activities - and loans secured on dwellings being sold by banks to OFI entities.
I'd like to confirm what these figures are showing and confirm exactly what is going on in the accounts at present.
Over and above the internal UK sector issues, I'm still concerned that there may be balance of payments issues, as theoretically, when overseas securitisation entities are used, we should record inward cash flows, and outward transfers of assets (Damien, John - correct me if I'm wrong).
In Pink Book, I notice Table 9.13 Trade in services shows the Channel Islands 10th and Cayman Islands 21st in the list of trading partners - I'd be amazed if some of the trade flows here weren't this kind of activity.
Comments welcome
Phil
Phil Stokoe | National Accounts Classification | Public Sector Division | Office for National Statistics | Government Buildings | Cardiff Road | Newport | Wales | NP10 8XG | Room 2.164 | Phone: 01633 455805 | Internal Extension: 5805





Hugh Skipper

28/01/2011 15:24



To: Philip Stokoe/NEWPORT/ONS@ONS

cc: Damian Whittard/NEWPORT/ONS@ONS, John Bundey/BOPD/MESAG/LONDON/ONS@ONS

Subject: Re: Link Message: Banking Special Purpose Vehicles (SPVs) - Classification Paper - FinalNotes Link




Phil

It might also be worth copying Damian and John (from BoP) into any correspondence on this. I've had a chat with both of them about it.


Hugh

From: Philip Stokoe on 28/01/2011 15:08

To: Hugh Skipper/IOSD/BSG/NEWPORT/ONS@ONS

cc: David Hobbs/OFD/BSG/NEWPORT/ONS@ONS


Document Link Information:

Database: NA Classification

Document: Banking Special Purpose Vehicles (SPVs) - Classification Paper - Final
Notes Link
Hi Hugh, (Copied to Dave for information)
I'm going to be populating and completing a classification paper (for the record) on the SPV issue - which I'll try and progress on Monday - I might run this by you before I shove it in front of an Executive Member of NACC for approval of any decision.
Are you around on Monday?
I note your second email - SPVs that are non-resident throws up possibly quite a big issue in terms of balance of payments and how they are treated in the other countries accounts - it wouldn't be good if the same units appear in other country OFI sectors and in our MFI sector as we judge them to not be institutional units.
Any idea which countries are involved?
Phil





NACDD BDB on NGROUP1

Created By: Sanjiv Mahajan on 05/05/2011 at 14:27









Title: Regulation on the European system of national and regional accounts in the EU - ECB Inputs








Categorisation

International Coordination\ESA Revision






Note for the record


Martin.Udy@bankofengland.gsi.gov.uk

03/05/2011 13:46




To: Hugh Skipper/IOSD/BSG/NEWPORT/ONS@ONS

cc:

Subject: FW: For comments (by noon, 2 May): Regulation on the European system of national and regional accounts in the EU



Martin Udy

Manager

Monetary Statistics | MFSD | HO-4 B-D



Bank of England | Threadneedle Street | London EC2R 8AH | +44 20 7601 4731

martin.udy@bankofengland.co.uk

From: Lyon, Michael
Sent:
Wednesday, April 27, 2011 5:58 PM
To:
Sabine, Stephen
Cc:
Udy, Martin; England, David
Subject:
RE: For comments (by noon, 2 May): Regulation on the European system of national and regional accounts in the EU

Stephen –

Martin, David and I discussed this briefly in the MCG managers meeting earlier today.

Do we formally put a note to GPS saying ‘no comment’, or is it something that we can simply allow to lapse? Should we copy Mark in?

We are being asked for any comments on the draft ECB Opinion on the proposed ESA Regulation. As you note, the Opinion removes some uncertainty on the treatment of securitisation SPVs (or FVCs in ECB terminology), by aligning some paragraphs towards the ECB Regulation on FVCs. In so far as it does this, this would be compatible with increasing interest for macro prudential purposes in more granular data on the financial sector, and in that respect the Bank should be supportive, ie not object. This should be a practical improvement given that it arose as an issue in recent dialogue with ONS, and also in practical terms, the opposite position (consolidation of SPVs into parent MFIs) may introduce unrealistic reporting demands.

Will it impose new obligations on our reporting? Presumably it must do so, since we will be required to identify an S125 financial corporations subsector for other financial intermediaries... including SPVs, and this would be a required breakdown in the annex B listing of data items to be transmitted. But – I’m not quite clear on this – if (?) ESA leaves the defintion of UK domestic monetary aggregates alone, then we are free to continue including securitised loans into credit as poer opur current definitions.

Given the above, and noting that a UK response would have to come from GPS, to a deadline of 2 May, we agree with your line that the Bank should not object to the ECB’s draft Opinion.

One further comment:

Re-reading chapter 2, and although this has been gone over many times now, I am surprised at how poorly drafted and contradictory it still is. It is a classic draft by committee, incrementally evolved. The ECB’s Opinion does not modify it very much. For example, the criteria for an institutional unit remain as they have been, even though SPVs do not readily conform to them. There are failures in logical structuring of the discussion on institutional units – some subheadings refer to sub sectoral definitions; others do not. A number of concepts are defined in terms of what they are not, rather than what they are. FVCs are tautologically defined. The definition of captive financial institutions (S127) includes as an example SPVs that raise funds for parent entities – so that it is unclear why this example should not also encompass FVCs as separately defined (under S125). Even though we would now support a greater differentiation of financial corporations (more granularity), the contrast between 9 sub sectors of FCs and the single PNFCs sector is a little odd. One wonders why such a degree of differentiation could not have been more adroitly achieved – for example akin to the industry segmentation of corporates.

But, I’m not sure that there is very much that can be done about these issues. Certainly not an intervention at our GPS level. The practical approach is that most NCBs / NSIs seem to know what to do anyway.

- Michael

From: Sabine, Stephen
Sent:
Tuesday, April 26, 2011 3:38 PM
To:
Lyon, Michael; Udy, Martin
Subject:
FW: For comments (by noon, 2 May): Regulation on the European system of national and regional accounts in the EU

Michael, Martin

You may also be interested in the attached, in particular the ECB’s redrafting proposals concerning securitisation vehicles Annexed to the draft Opinion.

These would bring the ESA2010 fully into line with the ECB’s 2008 Regulation on FVCs. In a nutshell, this would remove from the ESA the leeway to consolidate securitization vehicles presently carried across from the equivalent SNA08 text.

The latter itself of course reflects earlier Bank input, consistent with our approach to ensure consistency in aggregate bank credit in the monetary statistics (primarily for users in MA).

However, since that time (and post-crisis) practical user interest elsewhere in the Bank (FS) is emerging for more granular information on SPVs and, given recent exchanges with Hugh Skipper, the ONS’ own conceptual thinking is tending towards that of the ECB. ONS’ views would be germane to any consideration of this topic when the ESA is discussed in the Council Working Group on Statistics [the current stage of the legislative process].

Hence, in informal discussion I think we have touched on the possibility that some systematic extension of collection if data from SPVs may be contemplated at some future date. [But unclear as yet by whom.]

Taking these developments into consideration, I do not propose that we should raise this with the Governor but you may feel differently.

[NB – the pdf attachment is the full ESA – over 1000 pages – do not print!]

Stephen


From: Sabine, Stephen
Sent:
Thursday, April 21, 2011 3:56 PM
To:
Perry, Liz; Francis, Perry
Subject:
FW: For comments (by noon, 2 May): Regulation on the European system of national and regional accounts in the EU

F Y I.........

A bit naughty, effectively only 3 working days to respond (unlikely in our case).

As this is a Gen Council paper, any comments would be via the Governor’s Office – so would need to be of critical significance for the UK.

Most contentious paragraphs are likely to be 13-15 on timeliness of reporting (“T+80”, etc) – but we can let those NCBs that are directly affected make the running on that. The ONS will argue the UK case in the Council Working Party.

Stephen

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