In a similar vein to the rest of the global regulatory community, the International Monetary Fund (IMF) is examining how it can better monitor the financial markets and the data concerns related to that challenge. In a paper published earlier this week, the IMF indicates how it plans to map the interconnectedness of financial institutions across borders, including filling the gaps in financial sector data and collaborating with key entities involved in financial stability work.
The challenges the IMF will face in this endeavour are likely to be similar to those facing regulators in enacting living wills reforms and the monitoring of systemic risk. It notes in its report that in order to adequately carry out its market surveillance function in the current environment, the IMF needs to improve its previously siloed methods of operation and move from a bilateral to a multilateral focus in terms of data monitoring. This is all representative of the more joined up approach to risk that is permeating the post-crisis financial market: holistic risk assessment, taking into account intra and inter-risk impacts.
“While bilateral surveillance would assess individual countries, thematic issues, and specific private sectors/institutions (financial sector) important for individual country stability, multilateral surveillance would deal with regions, networks of financial interconnectedness, and private sectors/institutions important for global stability,” states the IMF report.
A large part of its financial sector surveillance work will involve the filling of data gaps, it says: “The fund will need access to the necessary data, both aggregate data on the operation of the networks and on key institutions. The Interagency Group on Economic and Financial Statistics (established at end-2008, the Fund chairs this group) represents a promising start to improve data availability for global network analysis.”
To this end, the IMF will also work with the Financial Stability Board (FSB), which was established last year in order to globally track systemic risk. These regulatory bodies are thus tasked with taking the current mishmash of data produced by the financial services industry with regards to instruments and entities and structuring it in such a way that it makes sense in order to be able to track risk across the market.
As with the projects going on internally within financial institutions to adopt a more enterprise-wide approach to risk assessment, the IMF will need to tie up its risk assessment systems, but on a significantly larger scale. The Interagency Group on Economic and Financial Statistics will be tasked with tackling the data challenge and no doubt will have a job on its hands in mapping all the relevant sets of non-standardised entity and instrument identifiers across the financial markets.