Following the Money U.S. Finance in the World Economy (1995) / Chapter Skim
Currently Skimming:
3 CAPITAL ACCOUNT DATA: GAPS AND NEEDS
3 CAPITAL ACCOUNT DATA: GAPS AND NEEDS
Pages 75-113
The Chapter Skim interface presents what we've algorithmically identified as the most significant single chunk of text within every page in the chapter.
Select key terms on the right to highlight them within pages of the chapter.
From page 75... ...
capital flow data. At the same time, the Federal Reserve Board has taken steps complementing their efforts.
|
From page 76... ...
i 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.
|
From page 77... ...
subsidiary of a foreign firm because of the minority equity interest held by Seagrams (CanaciaJ, 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 a~lopted by the International Monetary Fund (IMFJ and user!
|
From page 78... ...
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 onehalf of the gross product of all foreign affiliates in three industries: primary ferrous metals, transportation, and communication and public utilities.
|
From page 79... ...
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 markecIly lower than those earned by U.S.
|
From page 80... ...
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.
|
From page 81... ...
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 uncler the Treasury International Capital (TIC) system.
|
From page 82... ...
{3-1 ) · The Treasury Department should continue its efforts to collect more complete data on nonresidents' holdings of U.S.
|
From page 83... ...
and foreign securities conflicted 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 macie it difficult to reconcile, for instance, U.S.
|
From page 84... ...
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.
|
From page 85... ...
, and the Fecleral Reserve Board (see Chapter 5~. The Treasury Department, prompted by BEA's research, completed a small survey of international transactions by U.S.
|
From page 86... ...
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 ciassifieci by issuing country.
|
From page 87... ...
hoiclings of stocks in these countries.7 However, its accuracy Lepers 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 ~lirectly from the global 7The 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~.
|
From page 88... ...
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 shouIc3 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 inctividuals or businesses that serve as money managers and investment advisers.
|
From page 89... ...
securities by gathering such income data directly from global custodians, instead of relying on indirect estimates based on security hoiclings. These agencies should also examine the feasibility of requiring filers to report an additional set of numbers, reflecting transactions by issuing country.
|
From page 90... ...
The IMP Report on Measurement of International Capital Flows [International Monetary Fund, 1992b) notes that there are particularly large differences for the United States between balance-ofpayments 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 IMP in its International Banking Statistics (IBSJ series.
|
From page 91... ...
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.
|
From page 92... ...
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 8Foreign 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.
|
From page 93... ...
practice to publish data on the foreign exchange holdings of its monetary authorities, by currency, it would be helpful if other countries were to provicle 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.
|
From page 94... ...
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.
|
From page 95... ...
. 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.
|
From page 96... ...
Forms Form and Frequency Who Must Report Coverage Currency BC All banks, other depository Monthly institutions (including commercial banks; banking Edge Act and Agreement Corporations; branches, agencies, and banking subsidiaries of foreign banks; buil.ling 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.
|
From page 97... ...
dollars Quarterly institutions, IBFs, bank bank's own holding companies, brokers claims, and and dealers located in the selected claims United States that on their of broker or own account have claims on dealer, on foreigners reportable on foreigners; Form BC or on the account of domestic their domestic customers have customers' claims on foreigners claims on foreigners held by reporting bank, broker, or dealer BQ-2 All banks, other depository Quarterly 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 U.S. dollar equivalents customers' claims on foreigners held by reporting bank, broker, or dealer continued on next page
|
From page 98... ...
dollars Quarterly persons, have liabilities to, liabilities or claims on, unaffiliated to unaffiliated foreigners, unless the amounts foreigners; fall below exemption levels financial specified for each form. claims on Among the types of persons to unaffiliated whom this reporting requirement foreigners applies are exporters, importer, industrial concerns, nonbank holding companies, nonbank
|
From page 99... ...
S All banks, other depository Monthly 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. Commercial U.S.
|
From page 100... ...
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 consoliciation 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.
|
From page 101... ...
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.
|
From page 102... ...
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, standarclized, and distributed regularly to all filers.
|
From page 103... ...
merchandise trade BE-llB U.S. reporters meeting Financial and operating data Annually requirements for filing of majority-owned Report BE-ll {see above} foreign affiliates, including report data on majority- information on balance owned affiliates sheet items, income statement, composition of external finances, distribution of sales or gross operating revenues, and U.S.
|
From page 104... ...
business enterprise Information related to Upon when a foreign person initial foreign direct acquisition establishes or acquires investment transaction, directly or indirectly including identification through an existing U.S. and ownership structure of affiliate a 10 percent or new U.S.
|
From page 105... ...
annually the affiliate is expected to direct investment abroad 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 BE-507 Each foreign affiliate newly Industry classifications of Upon established or acquired by a U.S.
|
From page 106... ...
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 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 U.S.
|
From page 107... ...
direct investment position and Benchmark investors transactions between foreign affiliates and U.S. direct investors BE-12 U.S.
|
From page 108... ...
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. As SES SMENT 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.
|
From page 109... ...
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, ant!
|
From page 110... ...
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)
|
From page 111... ...
should work together with data filers to streamline TIC reporting requirements (including level of cletails, frequency of reports, and exemption levels) , clarify reporting instructions and guidelines, and determine how particular transactions should be reported.
|
From page 112... ...
t3-19J · 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.
|
From page 113... ...
, 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 usefuIness of the TIC B forms, which collect monthly, quarterly, and semiannual information on banks' assets and liabilities with foreigners (see Table 3-1~.
|
Key Terms
This material may be derived from roughly machine-read images, and so is provided only to facilitate research.
More
information on Chapter Skim is available.