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In a letter responding to the Financial Stability Board’s (FSB) Consultative DocumentUnderstanding Financial Linkages: A Common Data Template for Global Systemically Important Banks (G-SIBs), major trade associations representing the global financial services industry agree that a common data template for large global financial institutions has the potential to both streamline data reporting for the institutions, as well as make important data available for macro-prudential analysis. However, standardized definitions of the data elements requested should be established, clear data security and confidentiality protections must be set up, and the initiative also needs to be designed carefully and narrowly or it could simply add to the already large number of data initiatives underway, and their associated costs, without clear benefit.
For example, the groups noted that strong governance over the process of gathering the data and its use is essential to data confidentiality and the success of the initiative. The groups expressed concerns about attempting to collect ad hoc information, which is very challenging and can be more efficiently accomplished in other ways, and also about some of the frequency and data lags suggested in the proposal that are simply unrealistic. In addition, a common template design must consider that different business models of G-SIBs and G-SIFIs limits the relevance of some data elements. If supervisors can commit to a common template that reflects harmonized definitions, aligns with some of the numerous other overlapping reporting obligations on G-SIBs, sets out realistic expectations on reporting frequency and lags, and clearly resolves important data security concerns, then the Associations will be able to more fully support this effort.
“The Associations span nearly all of the G-SIBs. We have a keen interest in helping this initiative come out in a sensible and constructive manner,” the groups write in the letter. “If supervisors can coalesce around a data template, that satisfies not only the FSB’s objective for improved macroprudential data, but also be used by the supervisors for some of their evolving data needs, then we all benefit.”
The Associations believe that the best way forward is to first focus on clarifying the objectives, leveraging off of existing and pending reporting initiatives by standardizing definitions, and involving the supervisors more directly. Any resulting G-SIB common template proposal should be accompanied by a clear cost/benefit analysis and address confidentiality issues. In particular, they recommend that the FSB take the following steps:
- Focus the objectives of this effort to the data needed for macroprudential analysis, and start with a small more focused template, to work through the many challenges involved, including logistics, definitions, and interpretation.
- Take inventory of the current reporting obligations of G-SIBs, as well as new data initiatives underway, to determine where existing data overlaps with data needed for macroprudential analysis.
- Standardize the definitions, where possible, of the data already collected or soon to be collected through other initiatives. Data definitions can vary across jurisdictions, markets, and even firms. Often different government bodies within a single country or region have different data specifications for similar data. Standardization is a “win-win” step, although surprisingly, there is little attention paid to this issue.
- Assess the cost and benefit of additional G-SIB reporting that the FSB, after taking the above steps, considers desirable. Without robust analysis of the potential benefits, it cannot be determined if the benefits outweigh the costs of a particular G-SIB common template.
- Involve the supervisors in the collection and ongoing interpretation of the data. The FSB has already set up a promising mechanism to monitor systemic risk of financial institutions and the linkages between institutions, including instituting Crisis Management Groups for each G-SIB, which will be responsible for fully understanding its financial profile. The Associations recommend that an expert “G-SIB Data Analysis” group be established, comprised of representatives from each G-SIB home supervisor.
- Address confidentiality of the data. This is an extremely important issue; protocols and firewalls need to be established, and legal protections need to be considered. Keeping the primary data interpretation and analysis function within a small group of supervisors will be helpful in achieving and maintaining the confidentiality objective.
The letter was filed by the Global Financial Markets Association, the American Bankers Association, The Clearing House Association, and The Financial Services Roundtable.
The full comment letter is available here: GFMA and Other Associations Submit Comments to the Financial Stability Board on their Consultative Document.
