Since 1934 under the Presidency of Franklin Delano Roosevelt, Treasury International Capital was implemented to provide data on United States international Portfolio Investment and Capital Movements, known in the modern day as TIC. The data was once collected and reported by various agencies over the years such as the Bureau of Economic Administration and the Census but due to a lack of interaction between agencies by those who collect, report and analyze the data, problems existed.
Problems existed in the type and quality of information in the early years so the Office of Federal Statistical Policy and Standards coordinated statistical efforts across agencies and accounted for its smoothness in operation for many decades. When the Office of Federal Statistical Policy and Standards lost its role in the 1980’s, Treasury took over the functions of collecting and reporting.
In 1983, after many years of negotiation, Treasury agreed that the Fed was entitled access to bank TIC data. Thanks to better coordination between the two agencies, TIC data is now collected and only recently reported on a monthly and quarterly basis quite accurately. Reasons stem from the world crisis due to the Asian currency devaluation.
This caught the world off guard and alerted all nations that a better reporting system was needed. Since 1974 and TIC system redesign in 1978, TIC data was collected and reported every five years and only covered certain types of securities transactions. Only in the past 10 years has this data been reported on a quarterly then monthly basis. But the collection and types of data didn’t come without problems.
Currency transactions was never a factor in the early reporting of transactions. Traditionally, when $10,000 entered or left the United States, a Currency and Monetary Instruments Report was filed with Customs. But this reporting never reflected TIC data. Today dollar values as well as currency claims and liabilities of transactions are accurately reported now thanks to easy computer transmission and accountability. This began in March 2003. For example, how does a trading firm incorporated in the United States handle transactions to and from the London office. What if that transaction resulted in a gain or loss. Or what if those monies sat idle in an overseas bank account. What if a bank wrote off a bad loan.This is all now fully reflected in the TIC reports.
TIC Data is the collection and reporting of purchases and sales of U.S.securities and financial instruments by institutions, governments, central banks, corporations and many other entities. In earlier days, the US was only concerned with reporting and collection of long term Government securities. Now the focus concerns all transactions short and long term such as stocks, derivatives, currencies, options, forwards and swaps as well as bank transactions and any cross border transactions. The purpose is twofold. To report cross border portfolio positions of nations, central bankers, corporations and other entities. Secondly, to determine dollar values that enter and exit the US. This is conducted for purposes of accountability and important for monetary policy purposes. Data is used to determine balance of payments, international policy and to track international financial markets. Balance of payments is published by the Bureau of Economic Analysis quarterly in three sections: current account, capital account and financial account. Its the debit and credits of the flow of funds into and out of the US. All information has a distinct analytical insight..
What if governments purchased short term T-Bill’s rather than long term bonds. What if corporate bonds were purchased over agencies securities. What if central bankers were selling government securities or selling dollar assets. What does this say for monetary policy. Should deficits be financed by governments or private markets.
Should interest rates rise or fall based on inflows and outflows of dollars. Should the US government buy what foreigners sell or sell what foreigners buy. And what types of instruments. For example, in 1974 overall ownership of securities by foreigners was 4.8 %, 13.5 % by 2003 while US Treasuries accounted for 14.7 % in 1974 and 45.5 % by 2003. These numbers account for dispersions rather than concentrations by any one nation. Yet these numbers have dramatically increased since 2003 with nation specific concentrations since part of modern day reporting is nation specific. Since September 2009, China holds $798.9 billion in US Government debt, up from $618.2 billion in September 2008. The next largest holder of US debt is Japan who in September 2008 held $617.2 billion and $751 billion in September 2009. Great Britain is third but doesn’t come near these totals.
The monthly TIC data is distinguished by Treasury’s TIC B Reports and the Federal Reserve’s S reports. BQ reports are Treasury’s quarterly reports and FR or FF belong to the Federal Reserve for quarterly reporting purposes. Each will be handled and explained separately with explanation of changes along the historic journey.
Treasury’s BL1 reports dollar denominated liabilities to foreigners.Excludes short term instruments. BL2 reports dollar denominated liabilities from foreigners.Includes longer term instruments. Institutions refer to depository, bank holding companies, financial holding companies, brokers and dealers. Foreign institutions refers to central banks, Ministries of Finance, Treasuries, Diplomatic Establishments, International and regional organizations. FR 2050 is a weekly report of EURODOLLAR liabilities held in foreign offices of US banks. FFIEC 002 that stands for Federal Financial Institutions Examinations Council Agency reports assets and liabilities of US branches and agencies of foreign banks. They collect balance and off balance sheet information. FFIEC 019- county exposure report for US branches and agencies of foreign banks. This information is collected nation by nation. FR 2069 now FR 2644, a weekly report that collects information on borrowings, loans, deposits and selected balance sheet items.
FRY-7N US non bank subsidiaries held by foreign banking organizations. FRY-7Q capital and asset report for foreign banking organizations. These reports are compiled by the International Reports Division of the Federal Reserve Bank of New York and reported on TIC D forms that also covers derivatives. The derivitives market had a notional value of $87 billion in 1998 to $454 trillion in June 2006 measured in payments. Measured by market value its $3 trillion in June 1998 to $10 trillion in June 2006. Since 2007, derivatives data was reported in TIC data on TIC form D. Federal Reserve S forms for monthly data are US entities who buy or sell long term securities directly from or to foreigners.
Quarterly reports are represented by forms BQ2, foreign currency liabilities and claims of depository institutions and part 2 customers foreign currency liabilities to foreigners. BQ3, maturities of selected liabilities of depository institutions and bank holding companies to foreigners. FR2502a, assets and liabilities of large foreign offices of US banks. Monthly TIC data reports can be looked upon as rollovers leading into the quarterly and semi annual reports. Monthly and quarterly reports are released by the Treasury and found in detail on the Treasury’s web site.
While the International Portfolio Investment of Capital Movements was the beginning program in 1934, the program was suspended until 1943. The monthly and quarterly reports began in 1994 with many additions over the years as new financial products were introduced and new laws reflected expanded banking opportunities. Computers also helped the free flow and speed of capital in and out of borders. While the monthly and quarterly releases may draw criticism and praise from commentators, those employed in the TIC Department of the Treasury are not only experts but quite dedicated professionals.
November 2009 Brian Twomey
Brian Twomey is a currency trader and adjunct professor of Political Science at Gardner-Webb University