Improving the Measurement of Cross-Border Securities Holdings: The Treasury International Capital SLT
Brandner, Erika, Cai, Fang, Judson, Ruth, Montag, Hugh, Federal Reserve Bulletin
Understanding and accurately measuring cross-border financial flows and positions has long been important for analysis of portfolio exposures, but the significance of these measures has intensified since the onset of the financial crisis in late 2007, when patterns of cross-border flows changed dramatically. (1) In the United States, the system for measuring cross-border security investment has to this point consisted of annual surveys that measure securities positions and monthly reports that measure transactions in securities collected through the Treasury International Capital (TIC) reporting system. (2) During the crisis, estimated cross-border positions based on the more timely transactions data collected on the TIC S form were imperfect and in some cases misleading; in these cases, the more comprehensive survey data later revealed different patterns that would have improved understanding of vulnerabilities had they been known sooner. In the wake of the crisis, interest in improving the measurement of cross-border securities positions and flows was a chief motivation for the introduction of a new TIC reporting form for collecting monthly aggregate cross-border securities position data, the TIC SLT, for which the first wave of data was released on May 15, 2012.3 This article reviews the general structure of cross-border position and flow data, the benefits that the new SLT can provide, and the incoming information from the first two reporting months of SLT data, September and December 2011. While some patterns and characteristics of the SLT data will only become clear over time, the SLT data have already begun to provide insights on U.S. and foreign cross-border investment flows that are different from the monthly estimates based on existing flow data.
Cross-border financial flows are the other side of current account transactions, or trade in goods and services: When goods or services are bought by one country, the cost of the items acquired must, on net, be covered either by a corresponding sale of goods or services or by financial inflows, or sales of financial assets. For the United States, which has run a current account deficit for about two decades, measurements and analysis of cross-border financial flows and positions is vital for understanding the sustainability of the U.S. current account deficit.
Cross-border financial flows occur mainly in the form of purchases and sales of securities, lending to banks and firms, and direct investment. The first two types of activity are monitored through the TIC reporting system; the third, direct investment, which we will not review here, is collected and administered by the Bureau of Economic Analysis (BEA). (4) The TIC reporting system comprises several monthly forms as well as annual surveys and more-extensive periodic benchmark surveys of securities holdings; Appendix A: The TIC Reporting System provides an overview. Monthly TIC estimates of cross-border securities positions between surveys suffer from several shortcomings; because of these shortcomings, as well as interest in more-comprehensive, timely, and internationally comparable data, the SLT was developed and was first used in September 2011. The TIC SLT brings U.S. data collection into better alignment with updated international reporting standards, allows for quarterly publication of the U.S. International Investment Position, provides significantly timelier measurements of cross-border securities positions, and should ameliorate some, though not all, of the shortcomings of the current estimates based on the monthly transactions data.
This article reviews four topics. First, we review the data collection and compilation methodology in place prior to the debut of the SLT, including a review of the shortcomings and pitfalls of those reports and methods. Second, we review the SLT methodology and its ability to improve upon the existing system. We also discuss ongoing challenges to reporting and corresponding cautions that apply to interpretation of the data. …