Page 124 - Special Topic Session (STS) - Volume 4

STS570 Mary Everett et al.
income (PII) in the existing balance of payments framework. The split depends
on the proportion of DII which is not distributed to shareholders. Such
“undistributed profits” could take the form of either DII reinvested earnings
(DII_RE) or dividends paid from an affiliate to a parent, which are added to the
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corporate cash pile rather than paid out to shareholders.
NFCs are also important providers of funding to banks. As illustrated by
Aldasoro et al (2017), banks outside the United States have reported
considerable increases in their US dollar-denominated deposits from non-
banks since the GFC. This source of funding has more than offset the run-off
of eurodollar deposits by US money market funds that took place in 2016 (BIS
(2017a)). The recently enhanced counterparty sector dimension of the BIS
locational banking statistics reveals that NFCs’ deposits in BIS reporting banks
have grown by nearly 20% between end-March 2015 and end-
September 2017. Thus, the undistributed profits of NFCs have contributed to
keeping global liquidity conditions relatively loose, despite a number of
factors pulling in the opposite direction.

4. Discussion and Conclusion:
Given the measurement issues discussed in this special feature,
policymakers should exercise caution when using rules of thumb developed
for a bygone era. For example, debt/GDP and credit/GDP ratios may not be
good measures of financial system vulnerabilities for some countries, as the
denominator does not adequately capture the size of the domestic economy.
Unfortunately, the current national accounting framework creates obstacles to
the accurate interpretation of key economic indicators by stakeholders
including the official sector, financial market participants and researchers. The
complexity of global firms indicates that additional measures are necessary.
Such measures should augment the traditional national accounting framework
by looking through the “islands” with the ultimate goal of creating
consolidated national accounts.
A number of data initiatives now under way point to progress in addressing
these problems, as recognised in the G20 Data Gaps Initiative. These include
the Legal Entity Identifier initiative to identify distinct legal entities and link
them to the ultimate parent group; the various data sets collected by the BIS
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on a consolidated basis – eg the consolidated banking statistics, the G-SIB
data hub collection and the international debt securities; Ireland’s concept of

9 These undistributed profits should be captured in the financial account of the balance of
payments under the reinvested earnings component of direct investment and affect the
dynamics of the net international investment position (since, all else equal, the value of portfolio
equity liabilities should rise in proportion to the scale of retained earnings). The net international
investment position, however, receives less attention than the traditional current account
balance.
10 www.leiroc.org/
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