The U.S. System for Measuring Cross-Border Investment in Securities: A Primer with a Discussion of Recent Developments
Griever, William L., Lee, Gary A., Warnock, Francis E., Cleaver, Chad, Federal Reserve Bulletin
One of the most striking developments in international finance in recent years has been the enormous expansion in cross-border securities transactions and holdings, accompanied by a decline in the relative importance of international bank lending. In the past decade, for example, the share of U.S. equities transactions involving foreign investors rose from less than 1 percent to more than 20 percent. In contrast, over the same period, the share of bank lending in U.S. cross-border positions decreased by half. Cross-border securities flows are now large enough to significantly influence national markets and to affect the overall health of the international financial system.
The shift in the nature of cross-border financing has heightened interest in the quality and timeliness of the systems used by the United States and other countries to measure international securities flows and holdings. Ideally, the U.S. measurement system should provide information on the size of cross-border holdings, the geographic composition of holdings, the types of securities held, the extent of foreign ownership of U.S. companies, and developing trends. It should also help in understanding what drives portfolio flows into and out of the United States and the effect of these flows on exchange rates. As this article will show, the data collected by the United States can address some of these topics better than others.
The article is intended as a primer on the U.S. system for measuring cross-border securities investment. It begins with an overview of the data collection system and a look at some recent trends in cross-border holdings and transactions. It then discusses aspects of the system's design and implications of the design for data interpretation. The article concludes with a discussion of anticipated changes to the U.S. system and of the way those changes are being influenced by international efforts to improve the availability, timeliness, and quality of data on cross-border securities holdings worldwide.
OVERVIEW OF THE U.S. SYSTEM
The United States collects data on cross-border portfolio investment through the Treasury International Capital (TIC) reporting system. (1) The detail of information collected and the frequency of collection vary depending on the type of investment being measured.
Cross-border holdings of long-term securities (original term to maturity of more than one year) are measured at market value through periodic benchmark surveys of custodians, issuers, and investors; data are collected at the security level (that is, information is reported separately for each security).
Cross-border transactions in equities and long-term debt securities are measured at market value through monthly reports filed by transactors (mainly broker-dealers); data are collected at the aggregate level, by country (for simplicity, such data are referred to throughout this article as aggregate data).
Foreign holdings of U.S. short-term securities are measured in the aggregate, at face value, through monthly reports filed by banks and brokers and quarterly reports filed by corporate borrowers. (2) Some categories of short-term holdings are measured separately, while others are included indistinguishably in "catch-all" categories of short-term liabilities. U.S. holdings of foreign short-term securities are measured in the aggregate, at face value, through monthly reports filed by banks and brokers and quarterly reports filed by custodians and investors; all such holdings are commingled with other types of assets, such as time and demand deposits.
Measurement of cross-border activity in long-term securities is the focus of this article. For a description of the measurement of cross-border activity in short-term securities and other types of assets and liabilities, see the box "TIC Reporting System for Portfolio Investment Items Other Than Long-Term Securities."
The monthly aggregate transactions reports and the periodic benchmark surveys form a complementary system. …