Frequently Asked Questions about the New Press Release of Nov. 16, 2006
Number 1: What are the "other acquisitions of long-term securities, net" included in the new press release line 20, and why was this line added to the release?
A. This line includes estimates of principal repayments on asset backed securities (ABS), estimates of net acquisitions of equities through stock swaps, and changes in holdings of non-marketable Treasury bonds and notes.
Adjustments for ABS repayments:
Unlike most other debt securities, ABS typically repay both principal and interest on a regular basis, reducing the principal outstanding with each payment cycle. Although foreign purchases and sales of U.S. government agency and corporate ABS are included in the monthly TIC transactions data, the periodic repayments of principal associated with foreign holdings of ABS prior to redemption are not reported, because these repayment streams do not pass through the brokers and dealers primarily responsible for reporting securities transactions on the TIC form S. Thus, using the as-reported TIC data on agency and corporate debt transactions without accounting for these repayments will tend to overstate foreign net acquisitions of ABS; i.e., the monthly TIC data will include any new purchases of ABS but not the paydowns. Estimated ABS repayments can be large: for 2005, estimated repayments on long-term agency ABS were nearly $63 billion, while estimated repayments on corporate ABS were nearly $79 billion.
Estimated data for ABS repayment flows beginning in June 2002, as well as a methodology note on how these estimates are derived, are available on the TIC website at this link:
Adjustments for acquisitions of stocks through stock swaps:
The TIC monthly transactions data also cannot account for U.S. acquisitions of foreign stock and foreign acquisitions of U.S. stock that arise from stock swaps associated with corporate mergers or takeovers. When a foreign company acquires a U.S. company and the deal is financed in part through a stock swap, U.S. residents who held stock in the target company become holders of foreign equity. Likewise, if a U.S. company acquires a foreign company, a stock swap can increase foreign holdings of U.S. equity. Although merger activity has tapered off in recent years, stock swaps previously were an important source of financing for U.S. acquisitions of foreign equity. For example, in 2000 U.S. residents acquired $13 billion in foreign equity through net purchases and $80 billion through stock swaps associated with foreign acquisitions of U.S. companies. Adjustment data for stock swaps as well as a methodology note on how the estimates are derived are available on the TIC website at this link:
Adjustments for changes in holdings of non-marketable Treasury bonds and notes:
A small amount of non-marketable U.S. Treasury bonds and notes are held by selected foreign governments. As of August 2006, these holdings had a value of $1 billion. The website table of "Major Foreign Holders of U.S. Treasury Securities" includes holdings of these securities. Activity in these non-marketable securities is not reported on the TIC form S. More detail on these non-marketable Treasury securities can be found in Treasury Bulletin tables IFS-2 and IFS-3. The non-marketable data presented in IFS-3 will be available as a monthly webfile effective in November.
Number 2: What is included in the flows reported under "Other Negotiable Instruments and Selected Other Liabilities" (line 26 of the new press release), and why was this item added to the release?
A. The previous press release (lines 1-19 of the new press release) reports data on U.S. cross-border transactions in long-term securities only; that is, in securities with an original maturity of over one year. However, the TIC system also collects data on cross-border holdings of short-term securities as well as other bank-reported cross-border positions.
Line 26 of the new press release includes changes in foreign holdings of U.S. short-term negotiable securities other than short-term Treasury bills. (Changes in foreign holdings of U.S. Treasury bills are reported separately in the new press release in line 23). Short-term securities have an original maturity of one year or less. The short-term securities included in line 26 consist primarily of short-term U.S. government agency securities, commercial paper, and bankers' acceptances; however, the category also includes negotiable CDs of any maturity. "Selected Other Liabilities" include loans from TIC-reporter's managed foreign offices, and syndicated loans from foreigners to U.S. residents for which the TIC-reporter is the administrative agent.
Effective with the introduction of the new press release on November 16, the Treasury website will also include revised website files for banking liabilities as well as a slightly expanded monthly website version of the current quarterly Treasury Bulletin table CM I 1. These additional materials should make it easier for users to identify the positions in foreign holdings of short-term securities that underlie the flows reported in lines 23 through 28 of the new press release table.
Number 3: What is included in the flows reported in line 29 (monthly change in banks' own net dollar-denominated liabilities)?
A. These flows include changes in banks' own liabilities to foreigners in the form of deposits from foreign residents into U.S. banking institutions and borrowings from foreign residents (including funds borrowed under repurchase agreements), and changes in banks' own claims on foreign residents in the form of deposits in foreign banks and loans to foreigners (including funds loaned under resale agreements). Because interbank positions-which can include both claims on and liabilities to the same foreign entity-are a large part of the banks' own cross-border positions, these data are reported as the change in banks' own liabilities to foreign residents net of the change in claims on foreign residents. This series can be volatile on a monthly frequency. Note that while these data are referred to as changes in "bank" positions, the data also include the changes in own cross-border claims and liabilities of other depository institutions such as savings and loans associations and credit unions, and of bank and financial holding companies and securities brokers and dealers.
Number 4: Does the new press release provide complete data on U.S. cross-border activity?
A. The new press release provides a comprehensive view of the data collected and released monthly through the TIC system. However, it does not include cross-border financial transactions that are collected through the TIC system on a quarterly basis, or cross-border activity in the form of direct investment.
TIC quarterly data include bank-reported cross-border positions denominated in foreign currency, bank-reported claims on foreigners held for their domestic customers, and claims and liabilities reported by non-banking entities other than bank and financial holding companies and securities brokers and dealers. The quarterly bank-reported data in foreign currency and for customer claims are included in the bank-reported claims on and liabilities to foreigners (with a lag of one month) on the TIC website at these links:
The TIC data collected from nonbank reporters is available quarterly in the Treasury Bulletin in tables CM-IV-1 through CM-IV-4.
Direct investment data are collected and released by the Bureau of Economic Analysis, U.S. Department of Commerce. BEA's U.S. international accounts data, including the direct investment data, are available at this link:
October 20, 2006