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Following the Money: U.S. Finance in the World Economy (1995)

Chapter: 3 CAPITAL ACCOUNT DATA: GAPS AND NEEDS

« Previous: 2 CURRENT U.S. DATA SYSTEMS
Suggested Citation:"3 CAPITAL ACCOUNT DATA: GAPS AND NEEDS." National Research Council. 1995. Following the Money: U.S. Finance in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/2134.
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3
Capital Account Data: Gaps and Needs

In response to changes in world financial markets, the Bureau of Economic Analysis (BEA) in the U.S. Department of Commerce, the U.S. Department of the Treasury, and the Federal Reserve Bank of New York (FRBNY) have made significant strides over the past several years to improve U.S. capital flow data. At the same time, the Federal Reserve Board has taken steps complementing their efforts. Nonetheless, existing data on U.S. international capital transactions remain of varying quality. For financial transactions that have changed most in form and character and for which adjustments in data collection systems have lagged behind, the quality of data have been adversely affected. The accuracy and coverage of some data can be improved with changes in current methods and procedures at minimal additional cost. For other data, new initiatives and development efforts are required, as well as international coordination.

This chapter examines in detail the adequacy of the capital account data in the U.S. balance of payments and addresses ways to improve them. The types of data are discussed in the same order as they are presented in Chapter 2.

DIRECT INVESTMENT AND RELATED DATA

As discussed in Chapter 2, BEA conducts separate outward and inward surveys on direct investment. Comprehensive benchmark

Suggested Citation:"3 CAPITAL ACCOUNT DATA: GAPS AND NEEDS." National Research Council. 1995. Following the Money: U.S. Finance in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/2134.
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surveys covering the universe of filers are undertaken every 5 years. In other years, samples of companies are surveyed on a quarterly and an annual basis to update the benchmark surveys. Compilers and users familiar with the direct investment data, including the related statistics on capital expenditure, production, and employment, appear generally satisfied with them (see Appendix B). BEA has addressed a problem frequently raised about these data in the past—the need to update asset values: beginning in 1991, BEA reported the value of direct investment positions using three alternative methods. In addition to the traditional historical-cost basis, two current-price bases were introduced: current cost and market value. Under the current-cost valuation, direct investment stock figures are adjusted to reflect changes in the average price of affiliates' tangible assets. Under the market-value basis, the adjustments reflect changes in estimated market prices of affiliates, based on changes in equity market indices (see Landefeld and Lawson, 1991).1

In addition, under the Foreign Direct Investment and International Financial Data Improvements Act of 1990, BEA has begun linking its direct investment database to the Bureau of the Census's establishment (plant) data to produce detailed industry data on foreign investment in the United States. For example, BEA recently produced detailed data covering the number, employment, payroll, and shipments or sales of the establishments (plants) of U.S. affiliates of foreign companies for 1987 (Bureau of Economic Analysis/Bureau of the Census, 1992). The data show the activities conducted by affiliates in over 800 industries. Foreign-owned establishments (excluding banks) accounted for 1 percent of U.S. business establishments and 4 percent of U.S. nonbank business employment. In manufacturing, the employment share of foreign-owned establishments was 8 percent.2 Although foreign-owned companies accounted for a small share of the overall U.S. economy, they had significant shares of employment in a few industries: hydraulic cement manufacturing, 61 percent; polyester and nylon manufacturing, 60 percent. More than one-fourth of the employment of foreign-owned establishments was in California, New York,

1  

These alternative valuation methods are imprecise and cannot be applied to adjust data on individual countries and industries.

2  

Data from the 1992 benchmark survey show U.S. nonbank affiliates of foreign firms accounting for 5.1 percent of U.S. nonbank business employment and 11.6 percent of manufacturing employment in 1992 [Bureau of Economic Analysis, 1994b:161).

Suggested Citation:"3 CAPITAL ACCOUNT DATA: GAPS AND NEEDS." National Research Council. 1995. Following the Money: U.S. Finance in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/2134.
×

and Texas, but the share of total state employment was largest in Delaware (13 percent) and Hawaii (7 percent).

Foreign-owned establishments tended to be in capital-intensive industries, although foreign firms also own financial, insurance, and other business services establishments in the United States. BEA and the Census Bureau have also published expanded information for 1988 through 1991 on the manufacturing establishments of foreign-owned companies, including value added, capital expenditures, and other details (Bureau of Economic Analysis/Bureau of the Census, 1994). Under the same act, BEA is also authorized to give the Bureau of Labor Statistics (BLS) access to its foreign direct investment data so BLS can identify foreign-owned establishments in its database. BLS released data on the number, employment, and payroll of foreign-owned establishments in 1992 (Bureau of Labor Statistics, 1992). Additional BLS data on occupational structure in foreign-owned manufacturing establishments was released in 1993 (Bureau of Labor Statistics, 1993).

Despite these expansions in data and analysis, concerns have been expressed about the definition of direct investment and inadequate data in several major areas.

DEFINING DIRECT INVESTMENT

Investments by foreigners are treated as direct investments if 10 percent or more of the equity in a firm is owned by a single nonresident. In some instances, however, a single nonresident can hold 10 percent of the equity without exercising effective control. For example, Du Pont is treated as a U.S. subsidiary of a foreign firm because of the minority equity interest held by Seagrams (Canada), and some well-known financial institutions are treated as foreign-owned firms because of the minority equity interests held by Japanese institutions.

The 10 percent cutoff is an international standard adopted by the International Monetary Fund (IMF) and used by most countries. This dividing line is not intended to represent a controlling interest; it was adopted mainly to separate investments representing an active voice in the management of an enterprise from passive investments, for which the primary objective is capital gain or dividend income.

There is a question of whether the arbitrary statistical definition of direct investment (10 percent) causes problems with data collection and analysis. As the percentage of ownership declines, the ability of parent companies to comply with requests for de-

Suggested Citation:"3 CAPITAL ACCOUNT DATA: GAPS AND NEEDS." National Research Council. 1995. Following the Money: U.S. Finance in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/2134.
×

tailed information on the operations of their minority-owned affiliates also may decline. In the United States, the capital flow data between a parent and its affiliate (essentially transactions in the debt or equity securities of the affiliate, together with intracompany accounts) are available to the creditor-entity at any level of ownership. The parent also has information on dividends received. At levels below 20 percent of ownership, however, the parent company may have difficulty in obtaining information on earnings and, therefore, reinvested earnings, because under U.S. accounting rules, if the reporting entity owns less than 20 percent of a foreign affiliate, it does not have to maintain detailed information on its investment. Also, the lesser detail available on U.S. minority-owned foreign affiliates reflects the difficulty U.S. parent companies face in obtaining detailed operational information from foreign affiliates over which they do not have majority control.

Certain distortions can arise due to the treatment of minority ownerships. For instance, when a foreign investor acquires as much as a 10 percent interest in a U.S. enterprise, BEA begins to include the entire operation of that enterprise as part of the aggregate of the foreign share of U.S. employment, production, exports, imports, etc. BEA also publishes limited data on majority-owned affiliates of foreign firms: that is, affiliates for which foreign direct investors own more than 50 percent. In 1992 majority-owned nonbank affiliates accounted for about four-fifths or more of the gross product, total assets, sales and employment of all nonbank U.S. affiliates (Bureau of Economic Analysis, 1994b). Thus, in the aggregate, the distortion introduced into the data by the inclusion of minority-owned affiliates is modest.

There are some industries in which minority-owned affiliates represent an important share of total direct foreign investment. In 1992 minority-owned affiliates accounted for more than one-half of the gross product of all foreign affiliates in three industries: primary ferrous metals, transportation, and communication and public utilities. In the latter two of these industries, however, employment by all foreign affiliates accounted for only 5.1 and 2.2 percent of total employment, respectively (Bureau of Economic Analysis, 1994b).

BEA's ability to publish detailed data about minority-owned U.S. affiliates of foreign firms is to some degree restricted by the need to preserve the confidentiality of individual respondents. Publication of separate information about majority- and minority-owned affiliates, to the extent that confidentiality requirements

Suggested Citation:"3 CAPITAL ACCOUNT DATA: GAPS AND NEEDS." National Research Council. 1995. Following the Money: U.S. Finance in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/2134.
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permit, is helpful in better understanding the role of foreign ownership in the U.S. economy.

DATA GAPS AND PROBLEMS

Income Reported by U.S. Affiliates of Foreign Firms

The rates of return on investments earned by foreign direct investors in the United States are markedly lower than those earned by U.S. investors on direct investments abroad. At one time, this gap was commonly ascribed to the undervaluation of U.S. assets abroad, which are older on average than foreigners' assets in the United States. But the difference has persisted, although it is reduced when assets are revalued by BEA under the current-cost and market-value bases. Moreover, the difference is pervasive, showing up in bilateral comparisons as well as in the global data. The difference in rates of return is frequently cited to support the assertion that foreign firms are evading U.S. taxes by manipulating transfer prices to minimize the amounts of income attributable to their U.S. operations. That allegation has spawned proposals to impose higher taxes on those firms.

Several explanations have been offered for the difference in rates of return (see Landefeld et al., 1992; KPMG Peat Marwick, 1992; Grubert et al., 1991; Graham and Krugman, 1991). It has been suggested, for example, that many foreign investments in the United States are still relatively new, so that earnings are reduced by start-up costs, and that the United States is a safe place in which to invest, so that earnings on foreign investments in the United States do not have to earn as large a risk premium as U.S. investments in many other countries. The first explanation may apply when a foreign investment in the United States represents construction of a completely new industrial facility. The second hypothesis is called into question by the pervasive character of the difference in rates of return, which holds in cases of both safe and risky foreign locations. Another possibility relates to exchange rates. When the dollar is depreciating, charges billed (including goods imported by affiliates from parent firms) by foreign parent companies to their U.S. affiliates in appreciating currencies can reduce the affiliates' rate of return.

BEA recently examined why the rates of return on foreign direct investment in the United States are so low relative to the rates of return on comparable U.S. domestic investment. The study provided interesting insights, but the findings were incon-

Suggested Citation:"3 CAPITAL ACCOUNT DATA: GAPS AND NEEDS." National Research Council. 1995. Following the Money: U.S. Finance in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/2134.
×

clusive. BEA observed that the low returns on foreign direct investment in the United States appear to reflect certain long-term factors associated with the operations of multinational companies and the effect of a number of transitional factors that led to a surge of foreign direct investment in the United States in the 1980s. Multinational corporations may accept low returns in the United States in order to take advantage of economies of scale, gain access to a large U.S. market, or secure raw materials. The study also noted that current account surpluses in Japan and several other countries in the 1980s generated excess funds available for investment. Funds were attracted to the United States by average yields on U.S. investments that were higher than those on home-country investments. This spread allowed foreign investors to accept yields below the average yield on U.S. investments. Nonetheless, BEA cautioned, underlying economic conditions and motivations for direct investment vary markedly among countries, and it is difficult to generalize about the factors leading to low returns of foreign direct investment in the United States (Landefeld et al., 1992).

Late Reporting

Late filings by U.S. affiliates of foreign firms affect data on foreign direct investment in the United States. Late reporting imparts a bias to the direct investment data. The first figures released for any quarter, for example, can show that direct investment flows are falling, or rising less rapidly, because coverage is incomplete. The impression is corrected by subsequent revisions, but it is a source of concern. While knowledgeable users understand the limitations of the preliminary numbers, unsuspecting users can be misled by them.

Until recently BEA did not estimate capital flows of late filers in the quarterly surveys, which resulted in large annual revisions for foreign direct investment in the United States and for U.S. direct investment abroad. In June 1992 BEA introduced a methodology that uses matched sample data from filers on changes in direct investment equity positions to estimate equity capital flows for late filers. Nonetheless, direct investment flows can be lumpy, and there may thus be no stable relationship between the figures of firms that report promptly and those that do not. BEA has been regularly monitoring the results of its estimates of equity capital flows for delinquent reporters and will continue to do so

Suggested Citation:"3 CAPITAL ACCOUNT DATA: GAPS AND NEEDS." National Research Council. 1995. Following the Money: U.S. Finance in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/2134.
×

and adjust estimating procedures if experience shows adjustment to be desirable.

Financing of Multinationals

One aspect of the activities of multinationals that is not presently contained in BEA's published data is a presentation of sources and uses of funds. Information about sources and uses was collected for several years during the 1970s in an annual BEA survey, using a simple reporting form, but that survey was eliminated in the late 1970s.

Since 1982 BEA has instead conducted regular annual surveys of foreign direct investment in the United States and U.S. direct investment abroad. Data collected in these surveys includes items such as retained earnings, depreciation, capital expenditure, inventories, receivables and other assets. The data are published in balance sheet and income statement formats (see, for example, Bureau of Economic Analysis, 1994c). These data could be used to present information on sources and uses of funds, and it would be useful for BEA to do so. Data on sources and uses of funds of multinational enterprises would shed light on the extent to which they are financed by the local economy, as well as their contributions to the domestic sector. Such information is needed for analyzing the effect of foreign direct investment on the financial sector of the U.S. economy and that of U.S. direct investment abroad in host countries.

Real Estate Transactions

It is likely that foreign (nonresident) investment in U.S. real estate is not fully captured in the U.S. balance of payments. First, many of these transactions are in the form of limited partnerships.3 Limited partnerships are considered portfolio investment, not direct investment, and should be captured under the Treasury International Capital (TIC) system. Presently, however, they are covered only if they are listed on organized stock exchanges. Thus, large transactions representing the bulk of foreign investment in limited partnerships are covered, but smaller transactions may not be. Second, data on purchases of U.S. residential real estate by nonresidents for their personal use are not collected. Because

3  

Non-U.S. citizens are prohibited by law from investing in certain types of limited partnerships (such as oil and gas exploration partnerships).

Suggested Citation:"3 CAPITAL ACCOUNT DATA: GAPS AND NEEDS." National Research Council. 1995. Following the Money: U.S. Finance in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/2134.
×

of the large number and the difficulty in identifying and locating potential respondents, it appears that it is impractical to obtain such information as a part of BEA's data collection system on foreign direct investment in the United States. Nor does BEA's present legal authority cover such transactions. Nonresident purchases of residential real estate for personal use are thought to be a relatively small component of foreign investment in the United States as a whole, but are of interest to some states, such as Hawaii. Efforts to date to collect such information at the state level have encountered difficulties in separating resident from nonresident transactions.

RECOMMENDATIONS

  • If resources permit, BEA should either resume collection of more complete data on sources and uses of funds of multinational corporations, covering both outward and inward direct investment, or extract comparable information from the existing data. The results should be analyzed and published to inform the public about this essential operational aspect of multinational corporations. (3-1)

  • The Treasury Department should continue its efforts to collect more complete data on nonresidents' holdings of U.S. real estate in the form of limited partnerships. (3-2)

  • BEA should devote additional resources to analyzing the immense volume of data it collects on direct investment and examining the economic effects of the growth of multinational enterprises on domestic production, employment, and transfer of technology. BEA is in the best position to exploit the detailed information it gathers regularly on the activities of these enterprises. (3-3)

  • BEA should undertake further reviews, by industry, on the rates of return of foreign direct investment in the United States, with particular attention to any data or reporting problems that may contribute to measured differences between rates of return on U.S. investment abroad and foreign investment in the United States. (3-4)

  • BEA should continue to regularly review its new estimation procedure for late reporting in its direct investment surveys to ensure its reliability and cost-effectiveness. (3-5)

Suggested Citation:"3 CAPITAL ACCOUNT DATA: GAPS AND NEEDS." National Research Council. 1995. Following the Money: U.S. Finance in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/2134.
×

TRANSACTIONS IN SECURITIES

CURRENT PRACTICES

Banks, brokers, and dealers in the United States (and, in principle, other U.S. transactors) make monthly reports on U.S. securities bought and sold by foreigners (nonresidents) and on foreign securities bought and sold by U.S. residents. The transactions are classified geographically by the country of residence of the foreign party, although that party is often a financial intermediary rather than the ultimate owner or issuer. These flow data are reported in the balance of payments. In addition, they are used in conjunction with separate benchmark survey data to estimate holdings of securities, which, in turn, are used to estimate investment income flows.

This methodology produces three problems. First, when nonfinancial U.S. residents use brokers and dealers abroad to trade U.S. and foreign securities with foreigners, the transactions may not be recorded in the U.S. balance-of-payments statistics. Second, transactions in U.S. and foreign securities conducted in London and other foreign financial centers are reported as transactions for the countries in which the centers are located, not those in which the ultimate buyers and sellers reside. This has made it difficult to reconcile, for instance, U.S. and Japanese data on Japanese holdings of U.S. securities.4 Third, data on stocks of foreign securities held by U.S. residents are difficult to interpret or use to estimate income flows because they are based on flow data classified geographically by the counterparty (buyer or seller), not by the issuing country.

There are fewer problems associated with the flow, stock, and income figures pertaining to transactions in U.S. securities than with the figures pertaining to transactions in foreign securities. Although there is uncertainty about the geographic location of foreign holdings of U.S. securities, there is no doubt about the issuing country of the stocks and bonds involved. As a result, there is good information about the interest rates, dividend payments, and yields when estimating income flows and adjusting

4  

Under the TIC system, Japanese sales and purchases of U.S. securities are based on transactions that have taken place within the United States, while Japan's records include its worldwide transactions in U.S. securities. However, this does not necessarily result in a mismeasurement of net global transactions in U.S. Securities.

Suggested Citation:"3 CAPITAL ACCOUNT DATA: GAPS AND NEEDS." National Research Council. 1995. Following the Money: U.S. Finance in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/2134.
×

the values of holdings of U.S. securities by foreigners. When dealing with U.S. holdings of foreign securities, by contrast, there is no way to determine which countries' stocks and bonds are being traded. In addition, foreign holdings of U.S. securities are regularly surveyed, most recently in 1989, providing an up-to-date benchmark which can be used to make adjusted estimates for intermediate years. As noted above, until 1994 U.S. holdings of foreign securities had not been surveyed in a half century.

The Treasury Department has conducted benchmark surveys of foreign portfolio investment in the United States (inbound surveys) at least once every 5 years. These surveys collect information on foreign holdings of U.S. securities on a security-by-security basis. Approximately 4,000 U.S. firms that issue securities were included in the 1989 survey. The results of these benchmark surveys are intended to serve several purposes. First, they are used to update the cumulative transactions data with respect to both levels of foreign holdings and country of foreign investors. Second, they are used to improve estimates of the resulting income flows linked to the estimated stock of outstanding investment. Third, they are used to analyze foreigners' investment patterns in order to determine if these investments are of policy concern. Unfortunately, according to the Treasury Department, there are typically many errors in the initially submitted responses. In contrast to the regular TIC S forms, of which 80-90 percent are usable as submitted, only about 1 percent of submissions in the inbound survey can be used without extensive follow-up inquiries of the filers. The data eventually produced correspond well with position estimates based on the S form data, but the workload and reporting burden are substantially increased by the need for so much follow-up.

To improve data on transactions in foreign securities, the Treasury Department and FRBNY in recent years have undertaken several steps, the most important of which was a new outbound survey. The Treasury Department, in close consultation with BEA, the Federal Reserve Board, FRBNY, the Securities and Exchange Commission, and other government agencies, undertook a 1994 benchmark survey of the magnitude and composition of U.S. holdings of foreign securities. The survey collected detailed information on individual, foreign, long-term securities—both debt and equity—held by U.S. residents. When available, the results should improve estimates of the U.S. international investment position, as well as those of investment incomes associated with U.S. residents' investments in foreign long-term securities. They will also be a check on the accuracy of securities flow data. The

Suggested Citation:"3 CAPITAL ACCOUNT DATA: GAPS AND NEEDS." National Research Council. 1995. Following the Money: U.S. Finance in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/2134.
×

outbound survey will focus on three types of institutions: (1) a small number of banks and brokerage firms operating as global custodians; 5 (2) a number of U.S. banks that may be operating as intermediary custodians for U.S. institutional and high-net-worth individual investors; and (3) large U.S. institutional investors active in international securities markets.

In addition, the FRBNY is undertaking a broad-based survey of U.S. holdings of short-term foreign securities to complement the outbound survey of long-term securities. The plan is to survey all current respondents to selected TIC forms on their foreign short-term assets. 6 Specifically, respondents will be asked about their foreign assets of both negotiable and nonnegotiable short-term instruments, their foreign currency denominated assets, and short-term assets they hold in custody. Short-term instruments will include commercial paper; short-term marketable notes; bankers and trade acceptances; certificates of deposits; short-term federal, state, and local government paper; and account receivables.

The Treasury Department also plans to include U.S. currency flows in the TIC reporting system. This information will improve U.S. international capital flow data, as well as estimates of U.S. monetary aggregates. This work is being carried out jointly by the Treasury Department's data management group, its financial enforcement offices (which are responsible for currency reports), and the Federal Reserve Board (see Chapter 5).

The Treasury Department, prompted by BEA's research, completed a small survey of international transactions by U.S. pension funds in 1991. This was followed by a broader survey for 1992-1993 by the Treasury Department and the FRBNY. Both surveys have helped the Treasury Department's efforts to expand the S form reporting panel. The pension fund survey suggested that many transactions had been carried out by offshore money managers and so had not been captured by the reporting system. The 1992-1993 effort also uncovered a large number of nonreporters and generated additional data. The inclusion of transactions undertaken by U.S. pension funds resulted in a 25 percent increase in the gross value of reported securities transactions for the 17 months ending May 1993, a total of about $170 billion.

5  

Global custodians are institutions that manage the custody of financial assets for clients; see Chapter 5.

6  

The survey will also include a sample of nonreporters who are thought to be actively engaging in these activities.

Suggested Citation:"3 CAPITAL ACCOUNT DATA: GAPS AND NEEDS." National Research Council. 1995. Following the Money: U.S. Finance in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/2134.
×

UNRESOLVED ISSUES

The present method of classification of securities transactions by country is appropriate for balance-of-payments estimates, but it leads to flaws in the data on transactions and holdings of securities and the corresponding estimates of income. When a U.S. resident buys a Japanese bond from a Canadian, the transaction appears, correctly, in the Canadian column of the U.S. balance-of-payments table, not the Japanese column. If it appeared in the latter, an error would be introduced into both countries' columns; there would be a payment to a Canadian with no capital flow to match it, and there would be a capital outflow to Japan with no payment to match it. However, the present method of classification does not provide estimates of holdings by the originating country of the security. In the absence of information on the nationality of the bond, it will be treated as a Canadian bond and thus added to U.S. holdings of Canadian securities. U.S. investment income from Canada will be overstated thereafter, and U.S. investment from Japan will be understated.

A similar problem exists regarding the treatment of foreign transactions in U.S. securities. A Japanese purchase of a U.S. bond in London does not and should not appear as a flow of Japanese capital into the United States. But Japanese holdings of U.S. bonds will be understated thereafter, along with Japanese earnings of investment income from the United States. Meanwhile, holdings and investment income earnings for the United Kingdom will be overstated.

There is no easy way to directly obtain correct, current information on the geographic classification of U.S. securities held by foreigners and the corresponding estimates of investment income, but use of the periodic benchmark survey results to make estimates for intermediate years could greatly reduce the problem. For foreign securities held by U.S. entities, there are two ways of getting more information: by supplementing the present monthly reports on purchases and sales of securities and by amplifying that system with periodic surveys on U.S. holdings of foreign securities, as is done for foreign holdings of U.S. securities. For example, institutions that currently report purchases and sales of foreign securities could be asked to file two sets of numbers—transactions classified by counterparty, like those now filed, and transactions classified by issuing country. The latter could be used to build more accurate estimates of stocks and thus to produce more accurate estimates of income.

Suggested Citation:"3 CAPITAL ACCOUNT DATA: GAPS AND NEEDS." National Research Council. 1995. Following the Money: U.S. Finance in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/2134.
×

In the process of designing the new outbound survey of foreign securities owned by U.S. residents, the Treasury Department concluded that most of the foreign stocks and bonds owned by U.S. residents are held with a small number of banks and brokerages that act as global custodians. It proposes to concentrate on them rather than the ultimate owners of the securities. If this method is successful, it may be possible to obtain quarterly data on actual holdings from the global custodians and use them to derive quarterly flow estimates for the balance-of-payments accounts, rather than basing the flow estimates on reported purchases and sales.

At least two problems would arise, however, if quarterly estimates of stocks were used to estimate net purchases and sales. First, it would be necessary to correct for price changes and exchange rate changes. That is necessary now, when estimates of holdings are built up year by year from estimates of previous holdings and transactions during the year. Under the present system, however, errors made in adjusting for price changes affect the stock and income estimates, but they do not affect the estimates of capital flows; the opposite would be true if quarterly estimates of stocks were used to estimate flows. Second, net changes in holdings, for example, of Canadian securities, would appear as transactions with Canada, even when the securities were not bought from a Canadian, and the errors in attribution would affect the estimates of the geography of capital flows rather than the stock and income estimates, as they now do. Consequently, it may be more appropriate to consider dual reporting of transactions in foreign securities, classified by country of the counterparty and by issuing country, although that may be burdensome to filers since it would entail doubling the number of reports they would have to file.

In June 1992 BEA introduced methodological changes intended to improve its estimates of income earned on U.S. holdings of foreign securities. The new method applies updated dividend yields by major countries to outstanding U.S. holdings of stocks in these countries.7 However, its accuracy depends on accurate information about the nature of the foreign securities held. A different method seems possible: developing annual and benchmark estimates of income by gathering such data directly from the global

7  

The previous methodology was based on a cumulated flow of dividend receipts from the outdated 1943 benchmark survey and outdated dividend rates, both of which severely underestimated the flow of dividend receipts to the United States (Bureau of Economic Analysis, 1992a:73).

Suggested Citation:"3 CAPITAL ACCOUNT DATA: GAPS AND NEEDS." National Research Council. 1995. Following the Money: U.S. Finance in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/2134.
×

custodians. Since most interest and dividend payments must be made to them in the first instance, they should be able to supply more accurate income data than those presently or potentially obtainable by any indirect method.

RECOMMENDATIONS

  • The Treasury Department and the Federal Reserve Bank of New York should mount a vigorous publicity campaign to bring the existence of the reporting requirements to the attention of all parties active in the international trading of securities, including pension funds, mutual funds, insurance companies, and individuals or businesses that serve as money managers and investment advisers. Special attention should be directed to institutional investors that deal directly in foreign markets. (3-6)

  • To better assess the debtor/creditor position of the United States in the world economy, the outbound benchmark survey by the Treasury Department of U.S. holdings of foreign securities should be conducted not only in 1994 but also periodically thereafter—at least once every 5 years—to avoid cumulative errors. It can and should be carried out more frequently if a system is developed for collecting data from global custodians and the system is shown to be cost-effective. (3-7)

  • The Treasury Department and the Federal Reserve Bank of New York should expand the TIC forms to improve the coverage of short-term securities, such as commercial paper. (3-8)

  • To improve estimates of U.S. monetary aggregates, the Treasury Department, working with the Federal Reserve, should develop ways to monitor shipments of U.S. currency abroad. (3-9)

  • For its inbound benchmark survey on foreign holdings of U.S. securities, the Treasury Department should improve the number of usable initial filings by continued educational efforts and other means to obtain the cooperation of filers. (3-10)

  • To improve coverage of nonfinancial transactors, the Treasury Department and the Federal Reserve Bank of New York should change the language of the S form to make it clear that reporting is required not only of banks, brokers, and dealers, but also of U.S. residents who have reportable transactions with nonresidents in either U.S. or foreign securities, especially those through investment advisers and money managers. (3-11)

  • The Bureau of Economic Analysis, the Treasury Department, and the Federal Reserve Bank of New York should explore the possibility of developing annual or benchmark estimates of in-

Suggested Citation:"3 CAPITAL ACCOUNT DATA: GAPS AND NEEDS." National Research Council. 1995. Following the Money: U.S. Finance in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/2134.
×

come from U.S. holdings of foreign securities and foreign holdings of U.S. securities by gathering such income data directly from global custodians, instead of relying on indirect estimates based on security holdings. These agencies should also examine the feasibility of requiring filers to report an additional set of numbers, reflecting transactions by issuing country. Such data would be used to build more accurate estimates of stocks and to produce more accurate estimates of income. (3-12)

CLAIMS AND LIABILITIES

REPORTS OF U.S. BANKS

Except for the large potential for undercounting banks' custody transactions, as noted by BEA analysts, compilers and users of the TIC bank-reported data on U.S. bank transactions find no other glaring gaps or defects, and a recent study addressing the reliability of these data confirms this observation (Cayton, 1992). Since the current system emphasizes the transactions of banks, the compilers work closely with the reporting institutions, and they monitor and edit the data carefully.

It has been suggested, however, that the quarterly reports on foreign-currency claims and liabilities should be expanded to provide a currency-by-currency breakdown, at least for a few major currencies. As noted above in the discussion of transactions in securities, a breakdown by country is also needed. Without it, changes in claims and liabilities might be geographically misallocated, which will cause errors in the balance-of-payments accounts. Hence, a new breakdown by currency cannot replace the present one by country. For research and policy purposes, however, it may be important to know what currencies are held and owed as well as to know the geographic distribution of foreign-currency claims and liabilities.

Another vexing problem, which is not new but has become much more pervasive, concerns changes in official reserves, which have become a highly visible part of international capital movements. The most important component of official reserves is foreign exchange assets. Foreign exchange here refers to gross claims (securities, bank deposits, and the like) held by monetary authorities of one country and for which other countries have counterpart liabilities. Under the Balance-of-Payments Manual (International Monetary Fund, 1993a), external claims held by deposit money banks and readily available to authorities to meet a

Suggested Citation:"3 CAPITAL ACCOUNT DATA: GAPS AND NEEDS." National Research Council. 1995. Following the Money: U.S. Finance in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/2134.
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balance-of-payments need also may be counted as reserves. Many foreign central banks deposit their foreign-currency reserves in private institutions abroad or in domestic commercial banks. Those holdings, however, appear in U.S. statistics as liabilities to private institutions. This practice has sometimes led to serious interpretation problems of the reserves figures. Since the problem is one of interpretation and not a statistical one, it would be wrong to rearrange the data to deal with it. The United States has recently begun to publish data on its foreign-currency reserves, by currency (see Federal Reserve Board of Governors, 1994:587), but most other countries do not. It would be helpful if other countries published data on their reserves, showing currency composition.

REPORTS OF U.S. NONBANK INSTITUTIONS

There are serious and complex problems with regard to information on claims and liabilities of nonbank U.S. institutions, such as exporters and industrial and commercial firms. Other industrial countries have similar problems (see Appendix A). Nonbanks and individuals in the United States that have foreign claims and liabilities (above a certain reporting threshold level), other than holdings of long-term foreign securities, are supposed to report them on the TIC C forms. The amounts reported, however, appear to fall far short of the actual amounts—as measured by reference to the Bank for International Settlements (BIS) data—despite several attempts by the Treasury Department and FRBNY to increase the number of reporters. Data collected by the BIS, for example, suggest that foreign bank deposits held by U.S. residents are far larger than reported in the U.S. data, and Bank of England data indicate that U.K. banks hold large quantities of certificates of deposit in custody for U.S. residents. The difficulty of collecting comprehensive data on these claims and liabilities argues strongly for the use of partner country data, after careful analysis, for reconciliation and substitution purposes.

The IMF Report on Measurement of International Capital Flows (International Monetary Fund, 1992b) notes that there are particularly large differences for the United States between balance-of-payments data on nonbank capital outflows and inflows and those flows as calculated by reference to the banking statistics assembled by the BIS and by the IMF in its International Banking Statistics (IBS) series. For U.S. nonbanks, the differences between flows recorded in U.S. balance-of-payments compilations and flows de-

Suggested Citation:"3 CAPITAL ACCOUNT DATA: GAPS AND NEEDS." National Research Council. 1995. Following the Money: U.S. Finance in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/2134.
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rived from BIS and IBS figures averaged $20-25 billion per year during 1986-1989. These differences are attributable to the fact that, in the U.S. statistical system for balance of payments, reports on nonbank capital transactions are filed by only a few hundred large companies. ''A large volume of transactions by individuals and by large and small businesses escape the [nonbank] reporting system entirely" (International Monetary Fund, 1992b:125). The IMF (p. 127) recommends that countries "systematically compare national data on nonbank capital flows with 'other party' measures of these items that can be derived from foreign-bank reports in the BIS/IBS system" in compiling balance-of-payments statistics, since almost all countries have good records of foreign transactions of their banks. Countries that have used international banking statistics (BIS/IBS figures) as a source for balance-of-payments data on assets of nonbanks include Canada, Germany, Ireland, Mexico, and the United Kingdom.

The Treasury Department and FRBNY have long been aware of shortcomings in U.S. statistics on nonbanks' international capital transactions reported on the C forms because of the difficulty of identifying reporters. A survey of 8,000 nonreporting firms in 1978 resulted in an addition of only about 1 percent to the reporting universe (in numbers) on the C forms. As discussed above, the Treasury Department recently surveyed pension funds to expand coverage of securities transactions. In this process, the pension funds were also asked about their short-term investments abroad that might be reportable on the C form. Even if it were possible to achieve relatively adequate coverage of sizable nonbank financial institutions, however, there is little likelihood that the system could be expanded to cover all significant capital transactions by nonfinancial companies and by individual investors. Thus, there is clearly a need to examine whether the records of financial institutions abroad could be used as a source of statistical data on international capital transactions by nonfinancial U.S. institutions.

Because of inadequacies of coverage in the nonbank data, BEA, in its compilation of U.S. nonbank claims on unaffiliated foreigners in the U.S. balance of payments, has begun to use BIS data. BEA also uses the data collected by the Federal Reserve Board on liabilities of foreign branches of U.S. banks in the Bahamas and the Cayman Islands to supplement the TIC data on U.S. nonbanks. BEA also has begun to use BIS data to estimate bank claims on U.S. nonbanks from Caribbean and Asian banking centers. The adjustments made by BEA resulted in an increase of $212 billion in the estimated outstanding claims of U.S. nonbanks on unaffili-

Suggested Citation:"3 CAPITAL ACCOUNT DATA: GAPS AND NEEDS." National Research Council. 1995. Following the Money: U.S. Finance in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/2134.
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ated foreigners at the end of 1993. U.S. source data recorded these claims at $43 billion; with the substitution of BIS data this figure rises to $255 billion. U.S. nonbank liabilities to unaffiliated foreigners were adjusted upward for 1993 by $178 billion, from $55 billion to $233 billion (Bureau of Economic Analysis, 1994a:84).

An approach of using figures from international organizations and foreign central banks to improve current U.S. figures on international capital flows of nonbanks (actual or potential reporters on the C forms) does not eliminate the need for improving the coverage of the C form report, as well as of other reports. The C forms will be needed, in any event, to provide coverage of claims on and liabilities to countries that are not adequately covered in the international banking statistics. In addition, international banking statistics do not always conform to the balance-of-payments concept.

The Federal Reserve recently has begun to collect balance-sheet information for offshore branches of foreign-owned banks when these offshore offices are effectively managed by a U.S. agency or branch of a foreign bank.8 The reports show claims on and liabilities to U.S. residents, by different types of claims and liabilities. Since Caribbean offices of foreign-owned banks have made most of the loans to U.S. nonbank customers from the Caribbean area (see Federal Reserve Bank of New York, 1992a:54), use of these new data should permit a major improvement in coverage of both the external assets and liabilities of U.S. nonbanks.

RECOMMENDATIONS

  • Substitution by the Bureau of Economic Analysis of data from the Bank for International Settlements for data from U.S. sources has produced major improvements in coverage of the international claims and liabilities of U.S. nonbank firms and of investment income flows. BEA should continue its process of working with the BIS, the Federal Reserve, and the statistical authorities of other countries to seek further improvements in BEA's coverage

8  

Foreign banks' offices in the Cayman Islands report claims on U.S. nonbanks of $130 billion (see Federal Reserve Bank of New York, 1992a) and liabilities to U.S. nonbanks of about the same magnitude. These figures, which are collected annually by Cayman's authorities on report forms that have no reporting instructions, suggest that there is a substantial U.S. banking business being conducted through these branches that can be estimated only very roughly.

Suggested Citation:"3 CAPITAL ACCOUNT DATA: GAPS AND NEEDS." National Research Council. 1995. Following the Money: U.S. Finance in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/2134.
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of international transactions through additional use of data collected by international organizations and foreign central banks. (3-13)

  • The panel endorses the general recommendation of the IMF Working Group that foreign banks' liabilities to U.S. nonbanks be considered for substitution for reported U.S. nonbanks' claims on foreign banks. However, the panel stresses that U.S. programs to obtain data in this area from U.S. sources should be maintained and strengthened, even when partner country data are used instead of U.S. data, because U.S. compilers otherwise might become too reliant on the quality of other countries' data, over which they would have little control, and might be unable to detect new data needs and problems. (3-14)

  • Following the current U.S. practice to publish data on the foreign exchange holdings of its monetary authorities, by currency, it would be helpful if other countries were to provide similar information. (3-15)

OFFICIAL GOVERNMENT TRANSACTIONS

CURRENT PRACTICES AND PROBLEMS

In general, problems in coverage of government international capital transactions appear less serious than those of private ones. Accounting systems in the federal sector have not greatly changed over the past 30 years, although significant changes have occurred in the composition of programs and how the programs are classified. A major difficulty with the government data is that a substantial number of agencies do not submit data in time for them to be included in current reports: most of them report after the close of the current quarter but before the next quarter. BEA believes that it can do a reasonably good job of estimating the transactions of the missing quarter accurately as long as it has the previous quarter's information, but not when data from two quarters are unavailable. To reinforce the need for timely reporting, BEA reminds delinquent agencies of their obligation to report in a more timely manner, and it has requested that the U.S. Office of Management and Budget (OMB) reinforce this effort by reissuing Directive 19. BEA has also asked OMB to "beat the drums" to emphasize the importance of these data.

The majority of the large agencies provide their data directly to the BEA on tape; small agencies with one or two programs provide their data on paper. All of the data are stored in a database

Suggested Citation:"3 CAPITAL ACCOUNT DATA: GAPS AND NEEDS." National Research Council. 1995. Following the Money: U.S. Finance in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/2134.
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whose managers must be flexible enough to adjust to a variety of events, such as the rescheduling of developing country debt by Congress. Moreover, since many government agencies report to Congress and OMB at the end of each quarter, there are other significant reporting requirements that coincide with BEA data needs. Reporting due to BEA invariably is not at the top of most agencies' lists of priorities; Congress and OMB come first. In addition, each agency may have a slightly different way of accounting for specific transactions, introducing another potential source of difficulty for BEA's compiling effort. For the most part, these differences are structural, in terms of the accounting systems and the accounts associated with the transactions. Nonetheless, some agencies clearly follow different accounting conventions, and they use varying definitions in defining transactions. Because agencies provide information in a consolidated format, they necessarily omit some data on individual programs. Some of these differences and omissions can be identified and corrected, however, when comparisons are made with the detailed accounting records the agencies produce for other purposes.

The number of transactions currently reported to BEA, even in a consolidated manner, is in the hundreds of thousands for every quarter. Thus, when performing edit checks, which require comparing current data with those of the previous quarter, BEA must make cross-comparisons among several hundred transactions. Types of transactions and their characteristics change over time. BEA follows two rules to ensure that transactions are properly listed in the accounts: comparison with other transactions and creating a new kind of transaction. Consider, for example, special assistance to a developing country for flood relief. If such a transaction appeared in a new quarter's report, BEA would search among the current transactions to find other instances of flood relief and to classify the new transaction consistently. If a new type of aid arose, such as assistance to Russia to set up a central bank, a new category of transaction would be set up. For the Persian Gulf war pledges to the United States, for example, one can find in the Survey of Current Business (Bureau of Economic Analysis, 1992a) a separate line for reporting of negative grants from countries supporting the United States in the Desert Storm operation.

RECOMMENDATIONS

  • The panel recommends that the Office of Management and Budget reissue its Statistical Policy Directive 19 in the expecta-

Suggested Citation:"3 CAPITAL ACCOUNT DATA: GAPS AND NEEDS." National Research Council. 1995. Following the Money: U.S. Finance in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/2134.
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tion that this action will help promote the objectives of more accurate and timely reporting. Increased emphasis on the importance of this reporting, coupled with electronic reporting, should enhance the accuracy and timeliness of the statistics on official government capital transactions. (3-16)

  • The Bureau of Economic Analysis should examine the differences between the accounting reports submitted by federal agencies on their various military and foreign assistance programs to Congress and the Office of Management and Budget and the reports on official government international capital transactions they file with BEA. BEA should assess whether it can use the federal agencies' reports to Congress and OMB for balance-of-payments purposes. (3-17)

REPORTING BURDEN AND COMPLIANCE

A key to timely and accurate reporting of capital flow data is securing the cooperation of filers. Whether their reporting is complete and consistent depends on the manner in which their records are kept, their clear and uniform understanding of the types of transactions to be included, and their willingness to comply with the reporting requirements. The panel's canvass of data filers showed that they have a number of concerns about the reporting system (see Appendix B). With an understanding of filers' impressions of the reporting requirements, BEA, the Treasury Department, and FRBNY can better develop incentives to enhance compliance and to devise methods to improve the collection process.

TREASURY INTERNATIONAL CAPITAL SYSTEM

Table 3-1 shows the forms required under the TIC reporting system. In filing the B, S, and C forms, filers have to know the residence of the transactors in order to identify transactions between residents and nonresidents (foreigners). They also have to know whether the securities are domestic or foreign issues, whether the reportable transactions are debt or equity issues, and whether the financial instruments are short or long-term. In addition, filers are required to provide a list of geographic allocations, based on the residence of the immediate transactors.

Given the dramatic changes in financial market practices and facilities in recent years, financial intermediaries now engage in a much more complicated business. A multitude of specialized departments and offices conduct transactions in many countries around

Suggested Citation:"3 CAPITAL ACCOUNT DATA: GAPS AND NEEDS." National Research Council. 1995. Following the Money: U.S. Finance in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/2134.
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TABLE 3-1 Treasury International Capital (TIC) Forms

Form and Frequency

Who Must Report

Coverage

Currency

BC Monthly

All banks, other depository institutions (including commercial banks; banking Edge Act and Agreement Corporations; branches, agencies, and banking subsidiaries of foreign banks; building or savings and loan associations; mutual or stock savings banks; cooperative banks; credit unions; homestead associations; and consumer banks), International Banking Facilities (IBFs), bank holding companies, brokers and dealers located in the United States

Bank's own claims, and selected claims of brokers or dealers, on foreigners

U.S. dollars

BC (SA) Semiannually

All banks, other depository institutions, IBFs, bank holding companies, brokers and dealers who are required to report on Form BC as of June 30 and December 31

Bank's own claims, and selected claims of broker or dealer, on foreigners in countries not listed separately on Form BC

U.S. dollars

BL-1 Monthly

All banks, other depository institutions, IBFs, bank holding companies, brokers and dealers who borrow federal funds from unaffiliated foreigners

Bank's own liabilities, and selected liabilities of broker or dealer, to foreigners

U.S. dollars

BL-2 Monthly

All banks, other depository institutions, IBFs, bank holding companies, brokers and dealers located in the United States

Custody liabilities of banks, brokers, and dealers to foreigners

U.S. dollars

Suggested Citation:"3 CAPITAL ACCOUNT DATA: GAPS AND NEEDS." National Research Council. 1995. Following the Money: U.S. Finance in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/2134.
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Form and Frequency

Who Must Report

Coverage

Currency

BL-3 Monthly

Any intermediary, i.e., any bank, other depository institution, IBF, bank holding company, broker or dealer located in the United States, that knows that it is being used as the U.S. address of foreigners in connection with the servicing of their loans to nonbank borrowers in the United States may be required to report on this form. For instance, a bank in the United States may be an intermediary for reportable foreign borrowings that are carried on the books of a "shell" branch or other related foreign office

Intermediary's notification of foreign borrowing

U.S. dollars

BQ-1 Quarterly

All banks, other depository institutions, IBFs, bank holding companies, brokers and dealers located in the United States that on their own account have claims on foreigners reportable on Form BC or on the account of their domestic customers have claims on foreigners

Reporting bank's own claims, and selected claims of broker or dealer, on foreigners; domestic customers' claims on foreigners held by reporting bank, broker, or dealer

U.S. dollars

BQ-2 Quarterly

All banks, other depository institutions, IBFs, bank holding companies, brokers and dealers located in the United States that, on their own account, have liabilities to or claims on foreigners denominated in foreign currencies, or on the account of their domestic customers have claims on foreigners

Liabilities to, and claims on, foreigners of reporting bank, broker or dealer; domestic customers' claims on foreigners held by reporting bank, broker, or dealer

U.S. dollar equivalents

Suggested Citation:"3 CAPITAL ACCOUNT DATA: GAPS AND NEEDS." National Research Council. 1995. Following the Money: U.S. Finance in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/2134.
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Form and Frequency

Who Must Report

Coverage

Currency

BL-1 (SA) Semiannually

All banks, other depository institutions, IBFs, bank holding companies, brokers and dealers who are required to report on Form BL-1 as of June 30 and December 31

Bank's own liabilities, and selected liabilities of broker or dealer, to foreigners in countries not listed separately on Form BL-1

U.S. dollars

BL-2 (SA) Semiannually

All banks, other depository institutions, IBFs, bank holding companies, brokers and dealers who are required to report on Form BL-2 as of June 30 or December 31

Custody liabilities of reporting banks, brokers, and dealers to foreigners in countries not listed separately on Form BL-2

U.S. dollars

CM Monthly

All U.S. persons other than banks and other depository institutions; IBFs; bank holding companies and their domestic, majority-owned subsidiaries; security brokers and dealers; savings and loans and other thrift institutions; and the U.S. government and its agencies, corporations and other instrumentalities who on their own account or on the account of other U.S. persons, have liabilities to, or claims on, unaffiliated foreigners, unless the amounts fall below exemption levels specified for each form. Among the types of persons to whom this reporting requirement applies are exporters, importer, industrial concerns, nonbank holding companies, nonbank

Dollar deposit and certificate of deposit claims on banks abroad

U.S. dollars

CQ-1 Quarterly

 

Financial liabilities to unaffiliated foreigners; financial claims on unaffiliated foreigners

U.S. dollars

Suggested Citation:"3 CAPITAL ACCOUNT DATA: GAPS AND NEEDS." National Research Council. 1995. Following the Money: U.S. Finance in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/2134.
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Form and Frequency

Who Must Report

Coverage

Currency

CQ-2 Quarterly

financial institutions (e.g., insurance companies and money market funds), leasing concerns, nonprofit institutions, trading companies, charitable organizations or foundations, foreign sales corporations incorporated in the United States or its possessions, whether sole proprietorships, partnerships, associations or corporations, and the agencies, branches, subsidiaries and other affiliates of foreign business enterprises located in the United States.

(The exemption level for C forms is aggregate levels of reportable claims or liabilities of $10 million or more.)

Commercial liabilities to unaffiliated foreigners; commercial claims on unaffiliated foreigners

U.S. dollars

S Monthly

All banks, other depository institutions IBFs, bank holding companies, brokers, dealers, nonbanking enterprises or other persons in the United States who on their own behalf, or on behalf of customers, engage in transactions in long-term securities directly with foreigners (i.e., do not use a bank, broker, dealer, or other intermediary located in the U.S.); institutions that execute transactions by order of their domestic clients, who, in turn, are acting on behalf of foreigners; brokers who clear for other brokers and dealers who engage in long-term securities transactions with foreigners.

Purchases and sales of long-term securities by foreigners

U.S. dollars

Suggested Citation:"3 CAPITAL ACCOUNT DATA: GAPS AND NEEDS." National Research Council. 1995. Following the Money: U.S. Finance in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/2134.
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the clock. Under these circumstances, filers may not have available the information required for TIC forms, or they may have to expend considerable effort in order to report timely and accurate data. Specifically, most of the TIC reporting is prepared by comptrollers of financial intermediaries. To prepare the TIC reports, they have to accumulate, review, and process information obtained from offices in many different locations. They also have to identify the types of securities, a task that has become increasingly difficult in modern markets. The reporting of zero-coupon bonds or repurchase agreements, for example, is particularly difficult. The securitization of items traditionally on banks' balance sheets has created further possibilities for ambiguity and misunderstanding. There are also difficulties in recognizing international transactions in the newer, short-term financial instruments and derivatives. These problems can lead to incorrect reporting by filers, as can other difficulties discussed in the rest of this section.

Filers' Understanding of Tic Reporting

According to filers, they are unfamiliar with the purpose and the use of the required data, and they complain about the long time lag for the Treasury Department and FRBNY to respond to their requests for guidance on treatment of new financial instruments. To assist them in completing the forms, filers would like an understanding of the objectives and specific uses of the requested data. In addition, filers would find it useful if additional examples of transactions were included in the instructions.

Number of Reports and Data Consolidations

Depending on the organizational structure of a filer's operations and the level of automation, reporting entities frequently experience difficulty in compiling data at the required consolidation level—for example, bank, nonbank, and international banking facilities. In some instances, financial institutions find it easier to submit one consolidated report for a bank holding company than multiple reports. Other institutions find it easier to submit data by legal vehicle, business segment, or division or department. Filers stated that currently, for example, there are ten separate TIC forms applicable to banking institutions. Since separate reports are required for several consolidation levels, there may be an annual requirement of numerous forms, many of which

Suggested Citation:"3 CAPITAL ACCOUNT DATA: GAPS AND NEEDS." National Research Council. 1995. Following the Money: U.S. Finance in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/2134.
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are prepared manually. Filers would like to reduce this burden by eliminating some forms.

Inconsistencies Between TIC and Accounting Systems

Filers said that the TIC reporting requirements are often impractical, in that they exceed the capabilities of financial institutions to capture and report data. A bank's automated system is generally geared to one set of reporting criteria or classifications. Filers pointed out that inconsistencies between TIC reports and their own accounting systems make it difficult to construct criteria that can be uniformly applied. For example, many operating systems do not contain information that distinguishes a customer by location. A system may have been devised only to name the holdings of the bank's customer (for example, Bank of Tokyo) and not to distinguish between that bank's New York agency and its parent bank in Japan. Thus, to respond to the TIC reporting requirements that make the residence distinction is often a burdensome manual process. Even when a system has an address field, the instrument may only give the name of the organization and cite a U.S. or foreign paying agent. Thus, it is not known whether the issuer is the U.S. branch or agency of the foreign organization or the foreign parent.

Filing Deadlines

Filers also indicated that the 15-calendar-day period for filing reports is inadequate because operating systems and financial staffs in the reporting institutions are fully occupied with their own accounting tasks from the end of one month through the first ten business days of the next one. In addition, information from branches and subsidiaries located outside the United States is generally mailed to the reporting institution and may not be available by the reporting deadline. Moreover, the process of compiling data in the required format generally is a manual one. Filers would like to have at least 15-20 business days or 20 calendar days.

FRBNY Questions on TIC Reports

According to filers, FRBNY frequently queries them about the reported TIC data after it has compared entries on the TIC reports

Suggested Citation:"3 CAPITAL ACCOUNT DATA: GAPS AND NEEDS." National Research Council. 1995. Following the Money: U.S. Finance in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/2134.
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with those on other Federal Reserve reports. The time required of filers to respond to such queries often takes longer than to prepare the original report. This FRBNY follow-up is a necessary part of the effort to obtain accurate and complete data, but to the filers, this represents an additional reporting burden. According to filers, the queries raised often are due to definitional and timing differences between the TIC and other Federal Reserve reporting requirements.

In addition, although FRBNY frequently advises filers on the application of particular reporting requirements to specific capital transactions and provides interpretations to the instructions, these interpretations are not always formalized, standardized, and distributed regularly to all filers. To ensure consistent application of reporting requirements in comparable situations, filers would like FRBNY to document and periodically distribute such supplementary reporting guidance.

BEA DIRECT INVESTMENT REPORTING SYSTEM AND OTHER REPORTING REQUIREMENTS

Table 3-2 shows the forms required by BEA on direct investment. In response to the panel's survey, several large U.S.-based multinational enterprises with numerous foreign affiliates indicated that reporting requirements for the 5-year benchmark surveys are particularly burdensome. Several employee-years may be required to complete these forms (see Appendix B). These U.S. firms have to submit individual reports to BEA for their subsidiaries overseas, which often involves reviewing different sets of company accounts and in different languages. At the same time, few respondents to the panel's survey were familiar with BEA publications on direct investments. Nonetheless, they expressed interest in knowing how the data they report are tabulated by BEA and what the final products look like.

Respondents reported that the instructions for the BEA forms are fairly clear and that sufficient help can be obtained by calling the assistance number. Their views, however, were divided regarding whether the data required of them are generally available from their accounting and management records. Most did agree that providing information by geographic allocations is difficult due to differences between their accounting systems and the statistical reporting requirements. It should be noted that some companies establish and maintain supplementary data systems for statistical reporting purposes. Most respondents would like

Suggested Citation:"3 CAPITAL ACCOUNT DATA: GAPS AND NEEDS." National Research Council. 1995. Following the Money: U.S. Finance in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/2134.
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TABLE 3-2 Direct Investment Data Forms, Bureau of Economic Analysis

Report and Frequency

Who Must Report

Coverage

BE-11 (all forms) Annually

Nonbank U.S. persons having a nonexempt nonbank foreign affiliate. An affiliate is exempt if none of its exemption level items exceeds $15 million, if it is less than 20-percent-owned, directly and/or indirectly, by all U.S. reporters of the affiliate combined, if its U.S. parent is a bank, or if it is a bank

U.S. direct investment abroad, including current economic data on the operations of U.S. parent companies and their foreign affiliates

BE-11A Annually

U.S. reporters meeting requirements for filing form BE-11 (see above) report data for consolidated domestic enterprise

Financial and operating data of U.S. reporters, including information on balance sheet items, distribution of sales or gross operating revenues, and U.S. merchandise trade

BE-11B Annually

U.S. reporters meeting requirements for filing Report BE-11 (see above) report data on majority-owned affiliates

Financial and operating data of majority-owned foreign affiliates, including information on balance sheet items, income statement, composition of external finances, distribution of sales or gross operating revenues, and U.S. merchandise trade

BE-11C Annually

U.S. reporters meeting requirements for filing Report BE-11 (see above) report data on minority-owned affiliates

Financial and operating data of minority-owned foreign affiliates, including information on total assets, annual sales or gross operating revenues, net income (loss), U.S. merchandise trade, and employment and employee compensation

Suggested Citation:"3 CAPITAL ACCOUNT DATA: GAPS AND NEEDS." National Research Council. 1995. Following the Money: U.S. Finance in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/2134.
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Report and Frequency

Who Must Report

Coverage

BE-13 Upon acquisition

A U.S. business enterprise when a foreign person establishes or acquires directly or indirectly through an existing U.S. affiliate a 10 percent or more voting interest in that enterprise, including an enterprise that results from the direct or indirect acquisition by a foreign person of a business segment or operating unit of an existing U.S. business enterprise that is then organized as a separate legal entity or an existing U.S. affiliate of a foreign person when it acquires a U.S. business enterprise, or a business segment or operating unit of a U.S. business enterprise, that the existing U.S. affiliate merges into its own operations rather than continuing or organizing as a separate legal entity

Information related to initial foreign direct investment transaction, including identification and ownership structure of new U.S. affiliate or newly merged portion of a U.S. affiliate, financial and operating data, investment and services provided by state of local governments, and identification of foreign parent and ultimate beneficial owner, and cost of investment

BE-14 Upon direct investment

A U.S. person—including, but not limited to, an intermediary, a real estate broker, business broker, and a brokerage house—who assists or intervenes in the sale to, or purchase by, a foreign person or a U.S. affiliate of a foreign person, of a 10 percent or more voting interest in a U.S. business enterprise, including real estate or a U.S. person who enters into a joint venture with a foreign person to create a U.S. business enterprise

Information related to purchase or sale transactions or related to joint ventures

Suggested Citation:"3 CAPITAL ACCOUNT DATA: GAPS AND NEEDS." National Research Council. 1995. Following the Money: U.S. Finance in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/2134.
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Report and Frequency

Who Must Report

Coverage

BE-15 (long and short forms) Annually

Each nonbank U.S. business enterprise that was a U.S. affiliate of a foreign person at the end of its fiscal year, if on a fully consolidated, or, in the case of real estate investments, an aggregated basis, one or more of the following three items for the U.S. affiliate (not the foreign parent's share) exceeded cutoff levels at the end of its fiscal year: total assets, sales or gross operating revenues, excluding sales taxes, or net income after provision for U.S. income taxes. Cutoff levels are as follows: less than $10 million, exempt; between $10 and $20 million, file short form; greater than $20 million, file long form

Covers financial and operating data of U.S. affiliate, including information on balance sheet items and schedule of employment, land and other property, plant, and equipment, changes in retained earnings or incorporated U.S. affiliate or in total owner's equity of unincorporated U.S. affiliate, distribution of sales or gross operating revenues, employee compensation, taxes and research and development, and merchandise trade of U.S. affiliate

BE-133B and BE-133C Semiannually

Each nonbank majority-owned foreign affiliate of a nonbank U.S. parent, if any of the following three items for the affiliate is expected to be outside the range of negative $10 million to positive $10 million in any of the years to be reported: total assets, annual net sales or gross operating revenues, excluding sales taxes, or annual net income (loss) after foreign income taxes

Schedule and follow-up schedule of expenditures for property, plant, and equipment of U.S. direct investment abroad

BE-507 Upon acquisition or change of industry classification

Each foreign affiliate newly established or acquired by a U.S. person and required to be reported on form BE-577, BE-133B, or BE-133C; each U.S. person who becomes a new U.S. reporter by virtue of establishing or acquiring a

Industry classifications of U.S. reporter and foreign affiliates

Suggested Citation:"3 CAPITAL ACCOUNT DATA: GAPS AND NEEDS." National Research Council. 1995. Following the Money: U.S. Finance in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/2134.
×

Report and Frequency

Who Must Report

Coverage

 

foreign affiliate; or existing foreign affiliate or U.S. reporter whose industry classification has changed from that on a previous form

 

BE-577 Quarterly

U.S. persons who hold 10 percent or more of voting stock or equivalent interest in a nonexempt foreign business enterprise. If none of the three items listed below for a foreign business enterprise are outside the range of negative $15 million to positive $15 million, that enterprise is exempt from reporting

U.S. reporter's equity in foreign affiliate's, receipts and payments between U.S. reporter and foreign affiliate during quarter, debt and other intercompany balances between foreign affiliate and U.S. reporter, change during the quarter in U.S. reporter's equity in capital stock and/or additional paid-in capital of incorporated foreign affiliate or equity investment in unincorporated foreign affiliate, and U.S. reporter's share in annual income and equity position

BE-605 Quarterly

Every U.S. business enterprise, except an unincorporated bank, in which a foreign person had a direct and/or indirect ownership interest of 10 percent or more of the voting stock if an incorporated business enterprise or an equivalent interest in an unincorporated business enterprise at any time during the reporting period

Foreign parent's direct equity in U.S. affiliate's, direct payments to and receipts from foreign parent by U.S. affiliate, as consolidated, during quarter, intercompany debt balances between U.S. affiliate and foreign parent, change during the quarter in foreign parent's equity in U.S. affiliate, annual income and equity position, direct transactions or accounts between U.S. affiliate and foreign affiliates of the foreign parent

Suggested Citation:"3 CAPITAL ACCOUNT DATA: GAPS AND NEEDS." National Research Council. 1995. Following the Money: U.S. Finance in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/2134.
×

Report and Frequency

Who Must Report

Coverage

BE-606B Quarterly

Every unincorporated U.S. banking branch or agency in which a foreign person had a direct and/or indirect ownership interest of 10 percent or more at any time during the reporting period. The report is to cover direct transactions and positions between the unincorporated U.S. banking branch or agency (U.S. affiliate) and the foreign parent

Changes during quarter in foreign parent's permanent invested capital, certain realized and unrealized gains (losses), net of tax effect, and foreign parent's charges to U.S. affiliate, net of U.S. affiliate's charges to the foreign parent during the quarter

BE-10A, BE-10A-Bank, BE-10B, BE-10B-Bank Benchmark

U.S. persons who hold 10 percent or more of voting stock or equivalent interest in a foreign business enterprise and foreign affiliates of U.S. direct investors

Complete financial and operating data for U.S. persons who are direct investors abroad for each foreign affiliate; data on investment position and transactions between foreign affiliates and U.S. direct investors

BE-12 Benchmark

U.S. business enterprises (affiliates) in which one foreign person holds 10 percent or more of voting stock or equivalent interest

Complete financial and operating data for each U.S. affiliate of foreign direct investors; data on investment position and transactions between U.S. affiliates and foreign direct investors

more time to file the forms. They also would like BEA to consolidate forms with other federal ones that collect the same data.

As can be seen in Tables 3-1 and 3-2, BEA and the Treasury Department use many forms to collect data on direct and portfolio investment transactions between U.S. residents and foreigners. In addition, other federal agencies that have oversight, supervisory, and regulatory responsibilities for the nation's financial systems require financial institutions to report certain data on their business activities. (There are also state agencies that monitor financial institutions.) Federal banking regulatory agencies

Suggested Citation:"3 CAPITAL ACCOUNT DATA: GAPS AND NEEDS." National Research Council. 1995. Following the Money: U.S. Finance in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/2134.
×

include the Federal Reserve Board, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency. These three regulatory authorities also act through the Federal Financial Institutions Examination Council (FFIEC). Other regulatory agencies include the Securities and Exchange Commission, which oversees the nation's securities markets, and the Commodities Futures Trading Commission, which regulates activities in futures exchanges. Table 3-3 shows the reports required by the Federal Reserve Board and the FFIEC; Table 3-4 shows those required by other federal and some state agencies.

ASSESSMENT

According to respondents to the panel's survey of filers of BEA and Treasury Department reports, it is not uncommon for an internationally active financial institution to file almost all of these forms, and sometimes multiple copies of each, for their various affiliates and subsidiaries. One such institution reported that it files 1,300 statistical and reporting forms annually. Filers, in general, find the statistical and regulatory data reporting burdensome. They also complain about inconsistencies in reporting requirements, duplicative efforts, and the high costs of compliance. Respondents also note that they find little direct benefit to the management of their complex businesses from the required reporting.

The panel's survey of BEA, Treasury Department, and FRBNY staff to ascertain their perspectives on the efficiency of the existing data collection system on U.S. international capital transactions yielded similar observations. All recognized there is need to improve the existing system to close data gaps. In particular, BEA staff noted that the U.S. system suffers from gaps in coverage, duplication of effort, increasing respondent burdens, outdated data processing and collection methods, and inadequate or outdated estimation methodologies. BEA staff also noted that improvements in the efficiency of the existing data systems would be possible through access to banking and credit card clearance information; increased use of publicly available financial data; and increased use of regulatory information from agencies such as the Federal Reserve, the Securities and Exchange Commission, and the Commodities Futures Trading Commission (see Appendix B).

The panel agrees with the above assessment. It believes that an effective response to the growing reporting burden and diminishing usefulness of some of the reported data requires three steps: (1) to reexamine vigorously the various statistical and regulatory

Suggested Citation:"3 CAPITAL ACCOUNT DATA: GAPS AND NEEDS." National Research Council. 1995. Following the Money: U.S. Finance in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/2134.
×

reports; (2) to identify and eliminate duplications and inconsistencies; and (3) to the extent possible, combine similar reports and simplify others. The goal is to redirect the systems to collect data that are of maximum use at minimum cost to both filers and compilers. Toward this end, federal regulatory and statistical agencies will have to work together to streamline existing reporting systems and to eliminate low-priority programs. This is in line with the mandates of the FDIC Improvement Act, which encourages the FFIEC to consider eliminating the numerous differences between regulatory accounting principles (RAP) and the generally accepted accounting principles (GAAP) used in the preparation of corporate financial statements. Streamlining of reporting requirements will not only ease the reporting burden, but will also reduce the need to reconcile different databases. The resulting savings can be used to improve data quality, enforce reporting compliance, and strengthen data analysis efforts.

Data filers also report that disparate statistical and regulatory reports have hampered their electronic reporting; it is difficult to develop in-house automated data recording, management, and reporting systems to meet different reporting requirements. Coordinated efforts by federal regulatory and statistical agencies to develop consistent approaches to their data collection methods could greatly help the nation to move toward an electronic data collection system (see Chapter 5).

Since the 1987 stock market crash, federal regulatory agencies have worked together more closely on their supervisory responsibilities. Further coordination of these agencies with their statistical counterparts on data reporting will strengthen the effectiveness of both the regulatory and the data reporting systems, essential for monitoring the financial conditions of U.S. economy.

Because the structure of financial markets and the nature of financial instruments have changed dramatically over the past decade and will continue to evolve, a vigorous review of the disparate regulatory and statistical reporting forms is needed to ensure that only relevant data useful for public policy making are collected and that irrelevant data are not. Such a review is critical to enhance the cost-effectiveness of the existing data collection systems to cover adequately the burgeoning volume of financial transactions in various forms and levels of complexity. Coordinated efforts by regulatory and statistical agencies to streamline reporting requirements in consultation with filers is likely to engender filers' cooperation and compliance, yielding more accurate and timely data.

Suggested Citation:"3 CAPITAL ACCOUNT DATA: GAPS AND NEEDS." National Research Council. 1995. Following the Money: U.S. Finance in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/2134.
×

TABLE 3-3 Forms on Activities of Financial Institutions, Federal Reserve Board, and Federal Financial Institutions Examination Council

Report

Frequency

Coverage

FC-1

Weekly

Foreign currency report of banks in the United States

FC-2

Weekly

Consolidated foreign currency report on foreign branches and subsidiaries of U.S. banks

FC-3

Monthly

Assets, liabilities, and positions in specified foreign currencies of firms in the United States

FC-4

Quarterly

Consolidated report of assets, liabilities, and positions in specified currencies of foreign branches and subsidiaries of firms in the United States

FFIEC 004

Annually

Indebtedness

FFIEC 009

Quarterly

Country exposure report of banks in the United States

FFIEC 019

Quarterly

Country exposure report of foreign branches and subsidiaries of U.S. banks

FFIEC 030

Annually

Foreign branch report of condition

FFIEC 031

Quarterly

Consolidated Reports of Condition and Income (Call Report)

FFIEC 032

Quarterly

Consolidated Reports of Condition and Income (Call Report)

FFIEC 033

Quarterly

Consolidated Reports of Condition and Income (Call Report)

FFIEC 034

Quarterly

Consolidated Reports of Condition and Income (Call Report)

FFIEC 035

Monthly

Foreign currency report (domestic and foreign)

FR 2006

Monthly

Bankers' acceptances created by the bank

FR 2042

Monthly

Various time deposit instruments outstanding

FR 2050

Weekly

Selected deposits in foreign branches held by U.S. addresses

FR 2069

Weekly

Assets and liabilities for large U.S. branches and agencies of foreign banks

FR 2077

Weekly

Liabilities to/and custody holdings for U.S. addresses (foreign branches)

FR 2415

Weekly

Daily outstanding balances of selected borrowings

FR 2416

Weekly

Statement of condition for management's domestic offices and subsidiaries detailing assets, liabilities, and certain supplementary data

FR 2502

Monthly

Foreign branches assets and liabilities

FR 2502S

Quarterly

Foreign branches assets and liabilities

FR 2573

Monthly

Total dollar of debits to demand and savings deposits

Suggested Citation:"3 CAPITAL ACCOUNT DATA: GAPS AND NEEDS." National Research Council. 1995. Following the Money: U.S. Finance in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/2134.
×

Report

Frequency

Coverage

FR 2900

Weekly

Daily outstanding balances of demand, time and savings accounts, daily outstanding balances of cash items and balances on deposit with other banks. Used for computing management's reserve requirements

FR 2950

Weekly

Certain Eurocurrency transactions done with foreign entities

FR Y6

Annually

Bank holding companies

FR Y6A

Quarterly

Selected data for nonbank subsidiaries of bank holding companies

FR Y7

Annually

Annual report of foreign banking organizations

FR Y8

Semiannually

Report of bank holding company's intracompany transfers and balances

FR Y9C

Quarterly

Consolidated financial statements for bank holding companies

FR Y9LP

Quarterly

Parent company only financial statements

FR Y11AS

Annually

Combined financial statements of nonbank subsidiaries of bank holding companies, by type of nonbank subsidiary

FR Y11Q

Quarterly

Combined financial statements of nonbank subsidiaries of bank holding companies

FR Y20

Quarterly

Financial statements for a bank holding company subsidiary engaged in ineligible securities underwriting and dealing

FR Y111

Annually

Selected financial data for nonbank subsidiaries of bank holding companies

RECOMMENDATIONS

  • In response to the growing complexity of transactions and organizational structures of financial institutions, the Treasury Department and the Federal Reserve Bank of New York (FRBNY) should work together with data filers to streamline TIC reporting requirements (including level of details, frequency of reports, and exemption levels), clarify reporting instructions and guidelines, and determine how particular transactions should be reported. A major objective should be to eliminate unnecessary details, explore the feasibility of obtaining certain data on a quarterly instead of monthly basis (for example, data on country details), and simplify reporting forms. Periodic meetings between staff of the Treasury Department and FRBNY and filers should be held for these purposes. (3-18)

Suggested Citation:"3 CAPITAL ACCOUNT DATA: GAPS AND NEEDS." National Research Council. 1995. Following the Money: U.S. Finance in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/2134.
×

TABLE 3-4 Other Reports Required of Financial Institutions

Agency and Report

Frequency

Federal Deposit Insurance Corporation

FDIC Assessment

Semiannually

FDIC Survey—Summary of deposits by domestic branch

Annually

FDIC Examination

Every 5 years

Federal Financial Institutions Examination Council

Federal Reserve Board and New York State Bank Examination

Annually

Directors' examination

Annually

Trust examination

Annually

Abandoned property examination

Every 5 years

Securities and Exchange Commission

Form 10-Q financial report

Quarterly

Form 10-K financial report

Annually

State and other agencies

Section 121 Report

Monthly

Legal Lending Limit

Quarterly

New York State Report of Abandoned Property

Annually

Housing and Urban Development Survey

Quarterly

National Securities Clearing Corporation (NSCC) Survey

Quarterly

English Companies Act

Annually

  • The Treasury Department and the Federal Reserve Bank of New York should conduct an active educational campaign for data filers covering the purposes and uses of the required data. This would be especially helpful to foreign-owned financial intermediaries operating in the United States. (3-19)

  • The Treasury Department and the Federal Reserve Bank of New York should formalize their consultation processes with filers. A manual of instructions and administrative guidance should be distributed to filers. The manual could be in the form of diskettes or a loose-leaf binder, in which updated instructions would replace old ones. (3-20)

  • The panel recommends consideration of streamlining of reporting in four areas:

  1. The FFIEC 035 monthly foreign-currency report (see Table 3-3) contains substantial information on foreign-currency exposures. The additional requirement for financial institutions to file the weekly foreign-currency reports (FC-1, FC-2, FC-3, and FC-4) (see Table 3-3) for domestic offices and foreign offices seems unneces-

Suggested Citation:"3 CAPITAL ACCOUNT DATA: GAPS AND NEEDS." National Research Council. 1995. Following the Money: U.S. Finance in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/2134.
×

sary. The Federal Reserve Board and the Treasury Department should examine the two sets of forms to determine if the more detailed monthly FFIEC reports are sufficient to meet their needs for information on foreign-currency exposure.

  1. Through the quarterly Call Report (FFIEC 031, 032, 033, and 034) (see Table 3-3), the Federal Reserve Board, the FDIC, and the Office of the Comptroller of the Currency collect detailed information on the financial conditions of all banking institutions in the United States. In view of the volume of data gathered in the Call Report, the Treasury Department, in collaboration with the Bureau of Economic Analysis, should thoroughly review the usefulness of the TIC B forms, which collect monthly, quarterly, and semiannual information on banks' assets and liabilities with foreigners (see Table 3-1). If duplications exist or certain reported TIC data are no longer useful and meaningful, the TIC forms should be simplified.

  2. In view of the incomplete coverage under the TIC C form on nonbank commercial claims and liabilities with unaffiliated foreign firms, such as trade credit and accounts receivable and payable (see CQ-2 in Table 3-1), the Treasury Department and BEA should consider integrating Treasury's CQ-2 form with BEA's direct investment forms (see Table 3-2). In addition to direct investors, BEA should require firms that generate significant commercial credit and liabilities through trade to file the integrated form. Major U.S. and foreign exporters and importers located in the United States should be targeted. In addition, harmonizing the definitions of accounts payable and receivable used in balance-of-payments reporting and those used by firms in financial accounting under generally accepted accounting principles would help improve coverage. Under such principles, cash items are not included in accounts receivable or payable; they are, however, included in balance-of-payments reporting.

  3. The panel attaches great importance to BEA's 5-year censuses of outward and inward direct investments because they yield basic information on the economic effects of these enterprises. However, the panel notes that the list of questions and the degree of detail have multiplied over the years and is concerned that the reporting burden may outweigh the benefits. Accordingly, the panel recommends that BEA, in consultation with data users, review the need for each of the major sections of the censuses and the breakdowns, taking into account the extent to which the data developed are of good quality and used. (3-21)

Suggested Citation:"3 CAPITAL ACCOUNT DATA: GAPS AND NEEDS." National Research Council. 1995. Following the Money: U.S. Finance in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/2134.
×
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Many questions have been raised about America's status in the increasingly interconnected global economy. Yet key facts--such as the amount of foreign assets abroad owned by U.S. citizens--are not known. The crucial data needed to assess the U.S. position are unavailable.

This volume explores significant shortcomings in U.S. data on international capital transactions and their implications for policymakers. The volume offers clearcut recommendations for U.S. agencies to bring data collection and analyses of the global economy into the twenty-first century.

The volume explores

  • How factors emerging since the early 1980s have shaped world financial markets and revealed shortcomings in data collection and analysis.
  • How the existing U.S. data system works and where it fails how measurements of international financial transactions are recorded; and how swaps, options, and futures present special reporting problems.
  • How alternative methods, such as collecting data, from sources such as global custodians and international clearinghouses, might improve coverage and accuracy.
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