FOLLOWING THE MONEY

U.S. Finance in the World Economy

Anne Y. Kester and

Panel on International Capital Transactions

Committee on National Statistics

Commission on Behavioral and Social Sciences and Education

National Research Council

NATIONAL ACADEMY PRESS
Washington, D.C.
1995



The National Academies | 500 Fifth St. N.W. | Washington, D.C. 20001
Copyright © National Academy of Sciences. All rights reserved.
Terms of Use and Privacy Statement



Below are the first 10 and last 10 pages of uncorrected machine-read text (when available) of this chapter, followed by the top 30 algorithmically extracted key phrases from the chapter as a whole.
Intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text on the opening pages of each chapter. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

Do not use for reproduction, copying, pasting, or reading; exclusively for search engines.

OCR for page R1
Following the Money: U.S. Finance in the World Economy FOLLOWING THE MONEY U.S. Finance in the World Economy Anne Y. Kester and Panel on International Capital Transactions Committee on National Statistics Commission on Behavioral and Social Sciences and Education National Research Council NATIONAL ACADEMY PRESS Washington, D.C. 1995

OCR for page R1
Following the Money: U.S. Finance in the World Economy National Academy Press 2101 Constitution Avenue, NW Washington, DC 20418 NOTICE: The project that is the subject of this report was approved by the Governing Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of the committee responsible for the report were chosen for their special competences and with regard for appropriate balance. This report has been reviewed by a group other than the authors according to procedures approved by a Report Review Committee consisting of members of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. This project was supported by funds from the Bureau of Economic Analysis of the U.S. Department of Commerce, the Federal Reserve Board, and the U.S. Department of State. Library of Congress Cataloging-in-Publication Data Kester, Anne Y. Following the money: U.S. finance in the world economy / Anne Y. Kester and Panel on International Capital Transactions, Committee on National Statistics, Commission on Behavioral and Social Sciences and Education, National Research Council. p. cm. Includes bibliographical references and index. ISBN 0-309-04883-4 1. Financial services industry—United States. 2. Capital movements—Data processing. 3. Automatic data collection systems. I. National Research Council (U.S.). Panel on International Capital Transactions. II. Title. HG181.K42 1994 332.1'0973—dc20 95-32043 CIP Copyright 1995 by the National Academy of Sciences. All rights reserved. Printed in the United States of America.

OCR for page R1
Following the Money: U.S. Finance in the World Economy PANEL ON INTERNATIONAL CAPITAL TRANSACTIONS SAM Y. CROSS (Chair), School of International and Public Affairs, Columbia University, New York STEPHEN H. AXILROD, Nikko Securities International, Inc., New York RICHARD N. COOPER, Department of Economics, Harvard University DAVID T. DEVLIN, Citibank, New York RIMMER DE VRIES, Morgan Guaranty Trust Co., New York JEFFREY A. FRANKEL, Department of Economics, University of California, Berkeley EDWARD I. GEORGE, Department of Management Science and Information Systems, University of Texas, Austin JOHN G. HEIMANN, Merrill Lynch and Co., New York PETER B. KENEN, Department of Economics, Princeton University LAWRENCE R. KLEIN, Department of Economics, University of Pennsylvania, Philadelphia SAMUEL PIZER, Consultant, Washington, D.C. ROBERT SOLOMON, Brookings Institution, Washington, D.C. J. MICHAEL STEELE, Statistics Department, University of Pennsylvania NANCY H. TEETERS, IBM Corporation, Armonk, New York (retired) LAWRENCE A. THIBODEAU, Price Waterhouse, Washington, D.C. H. DAVID WILLEY, Morgan Stanley & Co., New York ANNE Y. KESTER, Study Director COURTENAY SLATER, Consultant ROBERT F. GEMMILL, Technical Adviser ROBERT L. SAMMONS, Technical Adviser CANDICE S. EVANS, Project Assistant ELIZABETH M. HUFFMAN, Project Assistant

OCR for page R1
Following the Money: U.S. Finance in the World Economy COMMITTEE ON NATIONAL STATISTICS 1992-1993 BURTON H. SINGER (Chair), Office of Population Research, Princeton University NORMAN M. BRADBURN (Vice Chair), National Opinion Research Center, University of Chicago MARTIN H. DAVID, Department of Economics, University of Wisconsin JOHN F. GEWEKE, Department of Economics, University of Minnesota, Minneapolis NOREEN GOLDMAN, Office of Population Research, Princeton University LOUIS GORDON, Department of Mathematics, University of Southern California JOEL B. GREENHOUSE, Department of Statistics, Carnegie Mellon University ERIC HANUSHEK, Department of Economics, University of Rochester ROBERT M. HAUSER, Department of Sociology, University of Wisconsin JANET L. NORWOOD, The Urban Institute, Washington, D.C. DOROTHY P. RICE, Department of Social and Behavioral Sciences, School of Nursing, University of California, San Francisco JOHN E. ROLPH, The RAND Corporation, Santa Monica, California KEITH RUST, Westat, Inc., Rockville, Maryland DANIEL L. SOLOMON, Department of Statistics, North Carolina State University MIRON L. STRAF, Director

OCR for page R1
Following the Money: U.S. Finance in the World Economy Contents     PREFACE   vii     SUMMARY   1     Findings   2     Recommendations   10     Concluding Observation   17 1   GLOBALIZATION OF FINANCIAL MARKETS   19     The Study and the Report   21     Factors Contributing to Globalization   23     Policy Issues Arising from Globalization   31     Implications of Globalization for Data Collection   37 2   CURRENT U.S. DATA SYSTEMS   43     Balance-of-Payments Framework: Concepts and Uses   44     Capital Account Data   49 3   CAPITAL ACCOUNT DATA: GAPS AND NEEDS   75     Direct Investment and Related Data   75     Transactions in Securities   83     Claims and Liabilities   89

OCR for page R1
Following the Money: U.S. Finance in the World Economy     Official Government Transactions   93     Reporting Burden and Compliance   95 4   FINANCIAL DERIVATIVES: DATA GAPS AND NEEDS   114     Uses and Growth of Financial Derivatives   115     Reporting Derivatives Transactions   121     Recommendations   133 5   ALTERNATIVE DATA SOURCES AND COLLECTION METHODS   135     Data Sources   136     Collection Methods   143     APPENDICES         A Monitoring Capital Transactions in the United Kingdom, Germany, and Japan   153     B Views of Data Compilers, Filers, and Users   163     REFERENCES AND BIBLIOGRAPHY   186     BIOGRAPHICAL SKETCHES OF PANEL MEMBERS AND STAFF   199     INDEX   205

OCR for page R1
Following the Money: U.S. Finance in the World Economy Preface This report on international capital transactions is the second from the Committee on National Statistics that considers issues of the U.S. economy in a global context. The first report, Behind the Numbers: U.S. Trade in the World Economy (Kester, 1992) resulted from a study undertaken in response to a recommendation by the Working Group on the Quality of Economic Statistics of the President's Economy Policy Council. That report assessed the adequacy of and recommended improvements for data on U.S. merchandise trade and international transactions in services. The report also noted the lack of information about international capital transactions and stressed that a fuller understanding of the U.S. position in the world economy could not be obtained without that information. In response to that finding and with funds provided by the Bureau of Economic Analysis of the U.S. Department of Commerce, the committee in 1992 convened the Panel on International Capital Transactions to analyze what data are available and recommend improvements. Subsequent grants were received from the Federal Reserve Board and the U.S. Department of State. Many people contributed to this report. First and foremost, of course, are the members of the panel. They worked hard to come to agreement on a wide-ranging set of recommendations to improve the nation's data on international capital transactions, although individual panel members may not necessarily agree with all of the analyses or discussions in the report.

OCR for page R1
Following the Money: U.S. Finance in the World Economy The study would not have been possible without the unstinting efforts of Dr. Anne Y. Kester. Dr. Kester served as study director for the first panel on U.S. merchandise trade and international services and in a similar capacity for the Panel on International Capital Transactions. Dr. Kester deserves special recognition for developing the study, drafting the report, and contributing many of its original ideas. The committee joins the panel in expressing gratitude and appreciation for her outstanding work. As time went on, the report had to be revised in order to incorporate many sets of new figures from BEA, acknowledge changes in some agency programs, and otherwise bring the report up to date. We asked Courtenay Slater, former chief economist in the Department of Commerce and a former member of the Committee on National Statistics, to help us. Thanks to her extensive assistance and hard work, the report has remained current. Additionally, John Kambhu, a research officer and senior economist at the Federal Reserve Bank of New York, provided much needed assistance in revising and strengthening our chapter on financial derivatives. We are indebted to him for his careful work. In addition to the panel, staff, and consultants, many people contributed to the study by providing the panel with information and insights. We thank Robert Gemmill and Robert Sammons, who served as technical advisers; Christopher Bach, Betty Barker, Carol Carson, Anthony Dillulo, Steven Landefeld, Ann Lawson, Bill McCormick, Louis Moczar, and Allan Young of the Bureau of Economic Analysis; Douglas Carpenter, Peter Hooper, Russell Krueger, Lawrence Promisel, Gail Smith, Lois Stekler, Guy V.G. Stevens, and Edwin Truman of the Federal Reserve Board; Michael C. Egan of the U.S. Department of State; Akbar Akhtar, Terry Melford, Susan Moore, Beth Schwartzberg, and Monica Szemple of the Federal Reserve Bank of New York; Bill Griever, Sidney Jones, Gary Lee, and Ashby McCown of the U.S. Department of the Treasury; Gail Haas, John Lee, and Norman Nelson of the New York Clearing House; P. A. Bull, Phil Davis, Charles Enoch, Robert Heath, David I. W. Locke, D. M. H. Pennington, Colin Pettigrew, and Chris Taylor of the Bank of England; Bruce Buckingham of the Central Statistical Office of the United Kingdom; Rudolf Seiler of the Deutsche Bundesbank; Shinichi Yoshikuni of the Bank of Japan; Jack Bame, John McLenaghan, Michael Mussa, and John Wilson of the International Monetary Fund; and many others including Linda Bergen, Derek Hargreaves, and Peter Hancock of J.P. Morgan, Edward Bernstein, and Ralph C. Bryant of the Brookings Institution, Michael Boskin of the Council of Economic Advisors,

OCR for page R1
Following the Money: U.S. Finance in the World Economy Jeffrey Carliner of the National Bureau of Economic Research, Robert DiClementi of Salomon Brothers, Inc., Bill Dobb of the International Swap Dealers Association, Ray Fitzgerald of Citicorp, Charles Taylor of the Group of Thirty, and the staff of the Financial Accounting Standards Board. We are also grateful to the many data users, filers, and compilers who responded to the panel's invitation for written comments. The committee and panel also express their appreciation to Elizabeth M. Huffman for assisting the panel in so many ways, especially in the preparation of the manuscript for publication; to Candice S. Evans, who also assisted with the manuscript; and to Eugenia Grohman for editing and guiding the report through review and publication. The committee thanks all of these people for what we believe is a major contribution to the statistical and policy issues in the rapidly evolving area of international capital transactions. Burton H. Singer, Chair Committee on National Statistics (1987-1993)

OCR for page R1
Following the Money: U.S. Finance in the World Economy The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. Upon the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Bruce Alberts is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. Harold Liebowitz is president of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, upon its own initiative, to identify issues of medical care, research, and education. Dr. Kenneth I. Shine is president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy's purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Bruce Alberts and Dr. Harold Liebowitz are chairman and vice chairman, respectively, of the National Research Council.