Traded Loans and Securities: Borderline Issues

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Traded Loans and Securities Borderline Issues
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• Loans Financial assets that are created when
  creditors lend funds directly to debtors, that
  are evidenced by non-negotiable documents ...
  (1993 SNA, page 312)
• Securities other than shares ... normally
  traded in the financial markets and that give
  ... (1993 SNA, page 312)

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The Issues

• Should traded loans be reclassified as debt
  securities?
• Or
• Should they remain loans?
• If reclassified, under what circumstances traded
  loans become securities?

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The Issues

• Should untraded securities be reclassified as
  debt securities?
• Or
• Should they remain securities?

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Existing Treatment for Loans

• Classification
• All manuals ? loans that become negotiable be
  classified in securities other than shares.
• Criteria
• 1993 SNA not specific.
• External Debt Guide 3.29, ESA 5.79
• Tradable and is, or has been, traded in the
  secondary market.
• Evidence of secondary market trading.
• Fairly strict requirements exclude one-off
  sales.

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Existing Treatment for Loans

• Recording of resulting flows
• ESA95 imputes financial transactions.
• 1993 SNA, External Debt Guide, GFSM, BPM5 imply
  recording as other changes due to
  reclassification.

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Existing Treatment for Securities

• No mention of reclassification.

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Discussion Points

• Do members agree that traded loans are to be
  reclassified as securities if a loan becomes
  tradable and is, or has been, traded in the
  secondary market? Alternatively, do members
  conclude that traded loans not be reclassified as
  debt securities?
• 2. If traded loans are reclassified as debt
  securities, should the definition of the
  requirements for a secondary market be elaborated
  according to the criteria in the External Debt
  Guide or some other criteria? What are the
  members views on whether, in addition to being
  tradable in secondary markets, there should be a
  requirement that the debtor is not legally
  prevented from buying back the debt?
• In the absence of consensus, the IMF Committee on
  BOP Statistics decided that the existing
  treatment for traded loans should be retained,
  i.e., they should be reclassified as securities
  when they meet the criteria (i.e., evidence of
  trading and market price) as set out in ESA95 and
  the External Debt Guide.

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Discussion Points

• 3. If traded loans are reclassified as debt
  securities, do members agree that the flows
  arising from traded loans becoming securities be
  treated as reclassifications in other changes in
  assets and liabilities account?
• 3½ . If traded loans are not reclassified, do
  members agree that loans should be broken down
  between traded and nontraded loans?
• Views were divided on whether loans should be
  broken down into traded loans and other loans.
• 4. Do members agree that untraded securities
  should not be reclassified?
• The Committee decided that untraded securities
  should not be reclassified.