Circular BCL 2002/175 of 17 July 2002 — New Statistical Data Collection for the Economic and Monetary Union: Table S 1.4: Adjustments Related to Valuation Effects

Luxembourg, 17 July 2002
To all credit institutions

CIRCULAR BCL 2002/175
New Statistical Data Collection for the Economic and Monetary Union
Table S 1.4: "Adjustments Related to Valuation Effects"

Dear Madam, Dear Sir,

On 23 November 1998, the Council (EC) adopted Regulation No 2533/98 concerning the collection of statistical information by the European Central Bank (ECB). This Regulation complements the framework of the ECB's statistical activities necessary to enable the European System of Central Banks (ESCB) to fulfill its functions by defining the natural and legal persons subject to reporting obligations, the confidentiality regime, and adequate implementation and sanction provisions, in accordance with Article 5.4 of the Statutes of the European System of Central Banks and of the European Central Bank.

Following this Council Regulation, the Governing Council of the ECB adopted Regulation ECB/2001/13 on the consolidated balance sheet of the monetary financial institutions sector.1

The ECB's statistical reporting requirements within the framework of the consolidated balance sheet of the monetary financial institutions (MFI) sector are governed by two essential rules. On the one hand, the ECB must receive comparable, reliable, and up-to-date statistical information, collected under similar conditions throughout the euro area. On the other hand, the reporting obligations established in the Regulation must respect the principles of transparency and legal certainty. The Regulation is therefore binding and applies directly throughout the euro area. It imposes direct obligations on legal or natural persons, subject to sanctions that may be imposed by the ECB if reporting requirements are not met.

The statistical information subject to reporting in accordance with the ECB's statistical requirements and the minimum standards to be respected are detailed in the aforementioned ECB Regulation.

1. Objectives

To comply with the aforementioned regulatory provisions, the BCL modifies the existing collection system by this Circular in order to achieve the following objectives:

1. Complete coverage of the European Central Bank's requirements for banking and monetary statistics and the balance of payments.

In the context of its analysis of monetary aggregates and their counterparts, as well as the evolution of key items in the consolidated balance sheet of monetary financial institutions, the ECB must be able to accurately determine the financial transactions actually carried out during a period. The amount of financial transactions carried out during a period can be approximated by taking the difference between the balances at the end of the period and those reported at the end of the previous period. However, this method is unsatisfactory because the differences in end-of-period balances are not explained solely by actual transactions but also by disruptive effects such as the valuation of balance sheet items, for example. To avoid these statistical distortions, the ECB must develop statistics that isolate valuation effects on balance sheet items that are not due to transactions. These valuation effects can take various forms, namely:

• Reclassifications and other adjustments related to changes in statistical coverage or balance sheet structure (notably in the context of merger or acquisition operations);
• Adjustments related to exchange rate variations;
• Adjustments related to valuation effects (credit write-downs and revaluation of prices of debt securities held or issued).

2. Compatibility with ESA95 (European Standards for National Accounts 1995).

The conformity of data collected according to the ESA95 standard will facilitate its use in the field of national accounting and the balance of payments, thereby avoiding, as much as possible, additional surveys.

2. Main Characteristics of Table S 1.4

The structure of report S 1.4 is based on the same principles as those of the monthly statistical report S 1.1 "Monthly Statistical Balance Sheet" and the quarterly reports S 2.5 "Quarterly Statistical Balance Sheet," which will enter into force on 1 January 2003.

However, Table S 1.4 is limited solely to the asset and liability items susceptible to being affected by the valuation effects described above and therefore does not include all items of Table S 1.1; logically, given the nature of the elements collected, the "Assets" part of this report is much more substantial than the "Liabilities" part.

Regarding the asset items, it should be noted that report S 1.4 includes the items of S 1.1, with the exception of the items "Cash" and "Units of Money Market Funds."

As for the liability items, Table S 1.4 includes only a small part of the items of S 1.1, namely the following items: "Issued Debt Securities," "Results," "Other Liabilities," and "Total Liabilities."

According to the principle of double-entry bookkeeping, any adjustment movement recorded on the asset and/or liability side must have its counterpart on the liability side, and more precisely at the level of the "Results" item; the total amounts of assets and liabilities of report S 1.4 must therefore, of course, be equal.

3. Integration of ECB Requirements into BCL Statistical Collection

The details of the breakdowns as well as the description of the items of the various tables are presented in the update of the "Collection of Instructions to Banks." As for its part, the ECB has established a "Compilation Guide on Money and Banking Statistics" (www.ecb.int) which is regularly updated when questions and/or problems arise; the BCL will ensure to adjust the collection as necessary in light of the ECB's guide.

The tables will continue to be completed in the currency of the capital, with conversions made at the exchange rate on the day the table is established, in accordance with the rules detailed in the "Definitions and Preliminary Comments" (XVI.12.c. of the Collection of Instructions to Banks).

4. Quality of Data Transmitted

In accordance with existing instructions, the amounts of assets and liabilities must be broken down according to the economic sector of the counterparty.

We deem it necessary to re-emphasize the importance of the quality of data transmitted to the BCL and the necessity of submitting the data prior to transmission to the verification rules detailed in the technical documentation. Only rigorous control performed at the time of data production will allow meeting both quality requirements and allocated deadlines. This point is all the more important as the data collected in this manner will be checked by the ECB services before being aggregated with data from other Member States. Any significant error or negligence will have damaging repercussions on the reputation of the entire national banking community.

5. Implementation of the New Collection

The communication of this information is mandatory starting from the deadline of end of January 2003; the new Table S 1.5 will therefore have to be submitted for the first time in February 2003.

6. Compliance with Reporting Deadlines

6.1. Deadline for Submission of Statistical Reports.

The monthly statistical report S 1.4 "Adjustments Related to Valuation Effects" must reach the Banque Centrale du Luxembourg within 12 working days following the end of the month to which it relates.

The BCL will establish and communicate, each year, to credit institutions a delivery schedule for data which includes the exact dates on which the aforementioned table must be submitted to the Banque Centrale du Luxembourg during the year.

6.2. Compliance with Delivery Deadlines

It is indicated to the concerned credit institutions that the Banque Centrale du Luxembourg must transmit the monthly statistical reports to the European Central Bank within a period of 15 working days following the period to which they relate. It is therefore essential that the institutions strictly respect the delivery deadlines defined in this Circular so that the Banque Centrale du Luxembourg can fulfill its commitments within the framework of the ESCB.

Please accept, Madam, Sir, the assurance of our very distinguished sentiments.

BANQUE CENTRALE DU LUXEMBOURG
The Management
Serge KOLB Andrée BILLON Yves MERSCH

Annex: 1

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1 Regulation (EC) No 2423/2001 of the European Central Bank of 22 November 2001 on the consolidated balance sheet of the monetary financial institutions sector (ECB/2001/13) published in the Official Journal of the European Communities L 333, 17/12/2001