Financial institutions

We examine whether loan portfolio sectoral specialization provides informational advantages to banks, enabling better credit risk assessment. Using euro area credit register data, we compare probabilities of default assigned by specialized and non-specialized banks to the same borrowing firm several quarters before the borrower defaults. We find that banks specialized in the borrower’s sector are better in predicting future defaults. This is mostly driven by specialized banks actively raising probabilities of default earlier, not by higher probabilities of default when loans are issued.

This paper presents the estimation method used to break down the euro area portfolio investment liabilities in the international investment position (i.i.p.) and their corresponding income debits in the balance of payments (b.o.p.), by main geographical counterpart. Identifying non-resident investors in euro area portfolio investment liabilities (i.e. equity and debt securities issued by euro area residents) is a complex task, as securities are regularly traded in secondary markets and held via custodians and other financial intermediaries.

Carol Corrado, Arthur Kennickell, and Tomaz CajnerThis paper was written for the academic conference held in celebration of the 100th anniversary of the Division of Research and Statistics (R&S) of the Federal Reserve Board. The work of the Federal Reserve turns strongly on empirical efforts to understand the structure and state of the economy, and R&S can be thought of as operating a large factory for discovering and developing data and analytical methods to provide evidence relevant to the mission of the Board.

The Bank of England chairs the London Foreign Exchange Joint Standing Committee (FXJSC) Operations Sub-Committee. The FXJSC is made up of market participants, infrastructure providers and the UK financial regulators.